Wyatt is paying back a loan with a nominal interest rate of 13.62%. if the interest is compounded quarterly, how much greater is wyatt’s effective interest rate than his nominal interest rate?

a.
0.96 percentage points
b.
0.40 percentage points
c.
0.25 percentage points
d.
0.71 percentage points

The correct option is D,0.71 percentage points

Step-by-step explanation:

Effective Rate = (1 + Nominal Rate / n)n - 1

n is the number of periods per year

nominal interest rate is 13.62%

effective interest rate=(1+13.62%/4)^4-1

effective interest rate=(1+0.03405 )^4-1

effective interest rate=(1.03405)^4-1

effective interest rate=1.14331567 -1

effective interest rate=0.14331567

effective interest rate=14.33%

effective interest rate less nominal rate=14.33%-13.62%=0.71%

The difference between effective interest of 14.33% and nominal interest rate of 13.62% is 0.71%