Answer :
The nominal interest rate per year is 19.52% which is equivalent to 0.21 per year compounded quarterly.
What is nominal interest rate?
- The nominal interest rate, sometimes known as the interest rate, is used in finance and economics to refer to one of two different concepts: the interest rate before inflation adjustment or the interest rate "as stated" without taking into account the full impact of compounding.
- The supply and demand of money, federal government activity, the central bank's monetary policy, among many other things, can all have an impact on nominal interest rates.
- As a tool for monetary policy, central banks use the short-term nominal interest rate.
- A nominal interest rate is the interest rate before accounting for inflation.
- The actual or anticipated rate of inflation must be subtracted from the nominal interest rate in order to determine the real interest rate.
Calculation of nominal interest rate:
Given, i = 0.21
ERR (Effective rate of return) Formula = [tex][ (1 +i/n)^n ][/tex] -1
0.21 = [tex][( 1+ i/4)^4][/tex] - 1
1 .21 = [tex](1+ i/4)^4[/tex]
[tex](1.21)^{1/4}[/tex]= 1 + i/4
1.0488088 = 4 + i/4
4 x 1.0488088 = 4 + i
4.1952352 = 4 + i
4.1952352 - 4 = i
therefore, i = 0.1952352
Normal interest rate per year = 0.1952352 x 100 = 19.52%
Hence, the nominal interest rate per year is 19.52%.
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