Answer and Explanation:
The computation is shown below:
Nominal interest rate is
= 1% × 12 months ÷ 1 year
= 12% per year
Formula is
= {(1 + interest rate)^number of compound period - 1) × 100
And, the effective interest rate per compounding period is
= {(1 + 1%)^7 - 1} × 100
= 7.21%
And, the effective annual interest rate is
= = {(1 + 1%)^12 - 1} × 100
= 12.68%
