8% Quarterly Compounded Rate to Equivalent Annually Compounded Rate

B

To solve such problems, think about investing a dollar for a year. The final amount should be the same under both the quotations. Under annually compounded rate, r, $1 grows to 1+r in 1 year. Under quarterly compounding, it grows to (1+0.08/4)^4 = 1.0824. Since these two should be equal, we get 1+r = 1.0824, giving r

= 8.24%. Note that the annually compounded rate must be larger than the quarterly rate, ruling out (d) automatically.