If a savings bank pays 15interest every three months what ar

If a saving\'s bank pays 1.5%interest every three months, what are the nominal and effective interest rates per year?

Solution

Nominal Interest rate = 6% (i.e. 1.5 * 4)

Effective Interest rate (i) = (1 + r/M)^M -1

Where, r = nominal interest rate per year

i = effective annual interest rate

M = number of interest periods per year

                               i = (1 + 0.6/4)⁴ - 1

                                  = 0.749 or 7.49%