Problema Solution
1. Boris invested $4,000 in a savings account for three years, at 12% compounded monthly. What is the effective rate of interest (APY) to the nearest hundredth percent? [Recall that APY is for ONE year.]
Answer provided by our tutors
Effective interest rate formula is
r = (1 + (i/n))^n - 1
i = 0.12 is the annual interest
n = 12 is the number of compounding periods
r = (1 + (0.12/12))^12 - 1
........
click here to see the step by step calculation
r = 0.1268
The effective interest rate is 12.68%.