What is the effective annual after-commission rate

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Reference no: EM131313251

Smith receives income from his investments in Japanese currency (yen). Smith does not convert the yen to dollars, but invests the yen in a term deposit that pays interest in yen. He finds a bank that will issue such a term deposit, but it charges a 1% commission on each initial placement and on each rollover. The current interest rate on the yen deposits is a nominal annual rate of 3.25% convertible quarterly for a 3-month deposit. To keep his yen available, Smith decides to roll over the deposit every 3 months. What is the effective annual after-commission rate that Smith earns?

Reference no: EM131313251

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