Question

find the effective rate of interest
5% compounded quarterly

Answer 1

hmmm.

Answer 2

there is no principal value so i don't know how to do this one

Answer 3

5.095%

Answer 4

how did you get that?

Answer 5

r = (1+i/n)^{n} - 1

Answer 6

http://en.wikipedia.org/wiki/Effective_interest_rate#Calculation

Answer 7

what would the i be in this case?

Answer 8

the i is the rate and the n's are "quarterly" or 4 in this case I think..

Answer 9

okay so the i would be what number?

Answer 10

.05 since they want 5%

Answer 11

okay gotcha!!!

Answer 12

thank you!!!

Answer 13

I think... I'm new to this and just wiki'd it.. so... :/

Answer 14

no you are correct!!!! i checked in the back of my book for the answer and it was 5.095

Answer 15

yea, that's right. I'm not exactly sure what "effective interest" means though...

Answer 16

I guess it's just an effective way of comparing different interest rates compounded however you choose, quarterly, or annually or whatever.. so you can compare without any principal amount. Right on.