What nominal rate of interest compounded monthly corresponds

What nominal rate of interest, compounded monthly, corresponds to an effective rate of 4%? (Round to three decimal places as needed.)

Solution

(a)Answer = 3.928 %

Solution:

we can calculate nominal rate of interest from given below formula

here effective rate 4% = 0.04 and n = 12 months

Effective Rate = (1 + Nominal Rate / n)ⁿ - 1

Nominal rate = n* ( (Effective Rate +1)^(1/n) -1)

= 12 * ( ( 0.04 +1)^(1/12)-1)

= 0.039284

= 3.928 %