The correct answer is A. 15.00%.
The nominal annual rate is the interest rate that is stated on the loan agreement. It is the rate that is used to calculate the monthly payments. However, the actual interest rate that you pay will be higher than the nominal annual rate because of compounding. Compounding is when interest is earned on interest. In this case, the interest is compounded five times per year. This means that the interest is calculated on the principal amount, plus any interest that has already been earned. This results in a higher effective interest rate.
To calculate the effective interest rate, we can use the following formula:
Effective interest rate = (1 + (Nominal annual rate / Number of compounding periods per year))^Number of compounding periods per year – 1
In this case, the effective interest rate is:
Effective interest rate = (1 + (3% / 5))^5 – 1 = 15.00%
Therefore, the nominal annual rate of 3% with five compounding periods per year is classified as 15.00%.