Question

Effective rate of interest for a sum of money compounded quarterly is 12.55%.What is the nominal rate? Without using log table

Answer 1

Let r be the nominal interest rate. Then:

(1+r/4)^4=1+12%

=1.12

(1+r/4)^4=1.12

Take the log of each side:

log (1+r/4)^4=log 1.12

4 log (1+r/4)=0.04921802267

log (1+r/4)=0.0123045

10^log (1+r/4)=10^0.0123045

1+r/4=1.02873

r/4=0.02873

r=11.5% nominal interest rate ………….