What effective annual rate corresponds to a nominal annual rate of 12% compounded monthly?
Correct answer: C. 12.68%
- A. 12.00%
- B. 12.36%
- C. 12.68%
- D. 13.20%
Explanation
The effective annual rate is (1 + 0.12/12)¹² − 1. This equals approximately 12.68%, which is higher than the nominal rate because interest is compounded during the year.
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