Find the effective rate corresponding to the given nominal rate. (Use a 365-day year. Round your answer to two decimal places.)

4%/year compounded quarterly

To find the effective annual rate (EAR) corresponding to a nominal rate compounded quarterly, we use the formula:

\[
\text{Effective Rate (EAR)} = \left(1 + \frac{r}{n}\right)^n - 1
\]

where:
- \( r = 4\% = 0.04 \) (the nominal annual interest rate),
- \( n = 4 \) (the number of compounding periods per year, since it is compounded quarterly).

Let's substitute the values into the formula and calculate the effective annual rate.The effective annual rate (EAR) corresponding to a nominal rate of 4% per year compounded quarterly is **4.06%**.

Would you like to know more details or have any other questions?

Here are some related questions you might find interesting:
1. How does the compounding frequency affect the effective annual rate?
2. What is the formula to convert a nominal rate to an effective rate for any compounding frequency?
3. What would the effective annual rate be if the nominal rate was 5% compounded monthly?
4. How can the effective rate be used to compare different investment options?
5. What is the difference between APR (Annual Percentage Rate) and EAR?

**Tip:** The effective annual rate (EAR) gives a true picture of the interest rate on an investment or loan, taking compounding into account.

Learn how to calculate the effective annual rate (EAR) for a nominal rate of 4% per year compounded quarterly. Understand the formula used and get a detailed step-by-step solution. Suitable for college-level students and anyone interested in financial calculations.

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