Find the effective rate of interest corresponding to a nominal rate of 3.5% per year compounded annually, semiannually, quarterly and monthly. (Round your answers to two decimal places.)

Results are below.

Explanation:

Giving the following information:

Nominal annual rate= 3.5%

First, we need to determine the nominal rate, then the real rate annual rate.

Nominal rate= i/n

Real rate= [(1+i)^n] - 1

Semiannual:

Nominal rate= 0.035/2= 0.0175

Real rate= (1.0175^2) - 1

Real rate= 0.0353 = 3.53%

Quarterly:

Nominal rate= 0.035/4= 0.0.00875

Real rate= (1.00875^4) - 1

Real rate= 0.03546 = 3.55%

Monthly:

Nominal rate= 0.035/12= 0.00292

Real rate= (1.00292^12) - 1

Real rate= 0.0356 = 3.56%