The annual effective interest rate charged is 8.5% - NSC Technical Mathematics - Question 5 - 2021 - Paper 1

To find the nominal interest rate, we use the formula:

$i = m \left( (1 + i_{eff})^{1/m} - 1 \right)$

Where:

• $i_{eff} = 8.5\% = 0.085$
• $m = 4$ (since it’s compounded quarterly)

Substituting the values:

$i = 4 \left( (1 + 0.085)^{1/4} - 1 \right)$

Calculating:

$i = 4 \left( 1.085^{0.25} - 1 \right) \approx 0.0824$

Thus, the nominal interest rate (annual) is approximately 8.24%.