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Banks that compound interest quarterly sometimes advertise an effective annual interest rate. For example, a nominal annual interest rate of 12% compounded quarterly might be

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Banks that compound interest quarterly sometimes advertise an effective annual interest rate. For example, a nominal annual interest rate of 12% compounded quarterly might be advertised as an effective rate of 12.551%. Explain why. What would be the effective rate if the interest were compounded monthly? Daily? Give a formula for computing the effective annual interest rate as a function of the nominal annual interest rate i and the number of compounding periods n per year

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