Question

You are given an annual interest rate and the compounding period. Find the interest rate per compounding period.

13.2%; monthly

Answer 1

is it 1.6%?

Answer 2

Alright well first you would use the annual future value formula to find the yearly growth and assume a principle value of 100 for ease of calculation:

FV=PV(1+rate)^time=(100)(1+.132)^(1)=113.20

Now using the monthly future value formula you can solve for the monthly rate:
FV=PV(1+(rate/compound periods))^(time*compounding periods)

And since there are 12 months in a year:
113.20=(100)(1+(rate/12))^(1*12)
1.132=(1+(rate/12))^12
1.010386=1+(rate/12)
0.010386=rate/12
rate=0.12463=12.463%

So the monthly compounding rate is 12.463%.

Answer 3

does all that make sense?

Answer 4

yes thanks!

Answer 5

no prob