Problema Solution
Find the effective rate corresponding to nominal rate 6% / year compounded monthly. Round the answers to the nearest hundredth of percent.
Answer provided by our tutors
The effective rate corresponding to a stated rate of interest r compounded m times per year is:
r effective = (1 + r/m)^m - 1
In our case we have:
r = 0.06
m = 12 periods (compounded monthly)
We plug the values into the equation:
r effective = (1 + 0.06/12)^12 - 1
r effective = 0.0617
r effective = 6.17%