Answer:
1.2%
Step-by-step explanation:
-The effective annual rate of interest is calculated using the formula;
[tex]i_m=(1+i/m)^m-1[/tex]
where:
- [tex]i_m[/tex] is the effective annual rate.
- [tex]i[/tex] is the stated nominal rate
- [tex]m[/tex] the number of compounding in a year.
Therefore:
[tex]i_m=(1+0.012/1)^1-1\\\\=0.012=1.2\%[/tex]
Hence, the effective rate is equivalent to the nominal rate if there is only one compounding per year and is 1.2%
