Wyatt is paying back a loan with a nominal interest rate of 13.62%. If the interest is compounded quarterly, how much greater is Wyatt’s effective interest rate than his nominal interest rate?

For quarterly compounding, the effective annual rate is (1 + 0.1362/4)^4 − 1 ≈ 0.14332, or 14.332%. Subtract the nominal rate of 13.62%: 14.332% − 13.62% ≈ 0.71 percentage points. The correct choice is 0.71 percentage points.

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