Question
Suppose that a money market fund pays a nominal rate of interest of 8.7 percent convertible monthly. What is the equivalent nominal rate convertible quarterly?
Answers
Reiny
let the equivalent nominal rate compounded quarterly be j
Consider one year.
(1+.087/12)^12 = (1 + j/4)^4
1.00725^3 = 1+j/4
.051908068 = j/4
j = .087632274 or 8.763 %
Consider one year.
(1+.087/12)^12 = (1 + j/4)^4
1.00725^3 = 1+j/4
.051908068 = j/4
j = .087632274 or 8.763 %