In a loan of 8 compounded quarterly what is the periodic int

In a loan of 8% compounded quarterly, what is the periodic interest rate?

Solution

The periodic interest rate is the interest rate charged on a loan or realized on an investment over a specific period of time. Most interest rates are quoted on an annual basis. If the interest on the loan or investment compounds more frequent than annually, the annual interest rate must be converted to a periodic interest rate where interest charged or realized over each compounding period can be calculated. This calculation is made by dividing the annual interest rate by the number of compounding periods.

Other definition

Periodic Interest Rate (P)

This is the rate per compounding period, such as per month when your period is year and compounding is 12 times per year.

So P=8/4=2% as quarter in an year are 4 times.