A bank advertises that it pays interest compounded monthly. What is the effective rate of interest?

Question

A bank advertises that it pays   interest compounded monthly. What is the effective rate of interest?

anonymous · Answer

well how much interest do they compound?

anonymous · Answer

ohh sorry! 3 3/4 %

anonymous · Answer

What is the amount,(other details about the question)?

anonymous · Answer

the question does not give the amount

anonymous · Answer

this is the full question

anonymous · Answer

$$A = P(1+r/n)^{nt}$$

anonymous · Answer

but the problem is that there is no principal cost

anonymous · Answer

so i'm assuming you want to find the latter factor hence we at least need a time frame and a compounding schedule...

anonymous · Answer

yes i guess so

jim_thompson5910 · Answer

Effective Interest Rate

$$r=(1+\frac{i}{n})^n-1$$


$$r=(1+\frac{0.0375}{12})^{12}-1$$


$$r=(1+0.003125)^{12}-1$$


$$r=(1.003125)^{12}-1$$


$$r=1.03815129-1$$


$$r=0.03815129$$


Effective Interest Rate is 3.8215%

anonymous · Answer

jim:are you assuming the questions asking for an annual interest?

jim_thompson5910 · Answer

yes I'm assuming that the given rate is an annual rate

anonymous · Answer

yes that was correct!!!!