The treasurer of Lynn Lake Credit Union proposes changing the method of compounding interest on premium savings accounts to daily compounding. If the current rate is 4% compounded quarterly, what nominal rate should the treasurer suggest to the Board of Directors to maintain the same effective rate of interest?
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Given: Nominal rate (R) = 4% Compounded quarterly (n) = 4 Use the formula for effective rate of interest compounded quarterly: \(1 + i = (1 + \frac{R}{n})^n\) Substitute the values: \(1 + i = (1 + \frac{0.04}{4})^4\) \(1 + i = (1.01)^4\) \(1 + i = Show more…
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