Correct Answer - Option 2 : 12.6%
Explanation:
The nominal rate of interest = 12% (It is compounded quarterly)
Take original value = x
\(\therefore {\rm{Interest\;for\;a\;quarter\;}} = \left( {\frac{{0.12}}{4}} \right)x\)
We know that,
\({\rm{Value\;after\;a\;quarter}} = \left( {1 + \frac{{0.12}}{4}} \right)x\)
Now,
We have four quarters,
Hence, the value after a year = (1 + 0.03)4 x = 1.1255 x
\(\therefore {\rm{Effective\;rate\;of\;return}} = {\rm{\;}}\left( {\frac{{1.1255\;X - X}}{X}} \right) \times 100\)
∴ Effective rate of return = 12.55 %
