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%