I got the answer as 3.1 first. But then realized it has to be multiplied by 4 to adjust for making it annual rate. Bunuel Please suggest some literature to read about the conversions and tough questions based on them.

Initial Investment = $6,000
Interest Occured in the first 3 Quarters: 125 + 130 + 145 = $400
We want total interest to be 10% of the inital investement ($6,000), or $600
So quarter 4 has to earn 600 - 400 =$200 worth of interest

To find the interest rate, take the Interest earned in Q4 divided by the total amount (Initial Investment + 3 quarters of interest)
200/6400

When we simplify that we get 1/32 BUT WE CAN'T STOP HERE:
That gives us the interest rate per quarter, to find the annual interest rate, you have to multiply that by 4.
You get 1/8 = 12.5%[/m]

Answer E