SOLUTION: A fund earns interest at the nominal rate of 8% compounded quarterly. At the end of each quarter, just after interest is credited, an expense charge equal to 0.4% of the fund is

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Question 1109512: A fund earns interest at the nominal rate of 8% compounded quarterly. At
the end of each quarter, just after interest is credited, an expense charge
equal to 0.4% of the fund is withdrawn. Determine the annual effective
rate realized by the fund.
Answer by addingup(3677) About Me  (Show Source):
You can put this solution on YOUR website!
Annual means that our t (time) = 4 (4 quarters in a year). Thus, our interest is 0.08/4 = 0.02.
Just after interest is credited, an expense charge equal to 0.4% of the fund is withdrawn, leaving us with 99.6% of the money or 0.996. So, after this withdrawal our money becomes:
(1.02 x 0.99.6)^4 = 1.0652 which makes the effective annual interest rate 6.52%