Find the effective rate of interest for 6% compounded quarterly.

Question

amistre64 · Answer

would it be 6%/4  ??

anonymous · Answer

effective rate means what? simple interest rate with same interest?

amistre64 · Answer

http://wserver.scc.losrios.edu/~burbagg/effective.pdf

amistre64 · Answer

it means something, but i cant find a decent definition for it :)

anonymous · Answer

it is the equivalent annual simple rate of interest that would yield the same amount as compounding after one year

amistre64 · Answer

Effective interest rate = (1 + r/n)^n  -1  maybe?

anonymous · Answer

yes!!!! but do i need a principal amount? don't i?

amistre64 · Answer

(1+.06/4)^4 = 1.06136355 .... 6.136...%

amistre64 · Answer

the principal amount is just what tells you the amount of money you have; the interest rate doesnt really care about how much it is interest rating :)

anonymous · Answer

okay great!!! thank you so much!

amistre64 · Answer

youre welcome

anonymous · Answer

so you just move the decimal over twice to get the answer?

anonymous · Answer

yes

amistre64 · Answer

once you chop of the 1, yes; to convert a decimal format to percent format ... move the decimal over 2 spots

anonymous · Answer

$$(1+\frac{.06}{4})^4$$ subtract 1, move the decimal twice to get the precent

amistre64 · Answer

consider the decimal format as 1%; to get to 100% you multiply it by 100

anonymous · Answer

Find the effective rate of interest for 4% compounded quarterly. what about this one? the answer turns out to be 1^-8

anonymous · Answer

and i don't think that is correct....

amistre64 · Answer

(1+.04/4)^4 -1 ... times 100

anonymous · Answer

ohhhh gotcha!!!!

amistre64 · Answer

= 1.04060401 ; -1 and move decimal to get

4.0604... %