The monthly compounded rate is 15% quoted on an annualized basis. The equivalent quarterly compounded rate is:
Click on the arrows to vote for the correct answer
A. B. C. D.A
To solve such problems, think about investing a dollar for 1 year. The final amount should be the same under both the quotations. Under quarterly compounded rate, r, $1 grows to (1+r/4)^4 in 1 year. Under monthly compounding, it grows to (1+0.15/12)^12 = 1.1608. Since these two should be equal, we get (1+r/4)^4 =
1.1608, giving r = 15.19%. Note that the quarterly compounded rate must be larger than the monthly compounded rate, ruling out 14.8% automatically.