Question

Find the effective annual interest rate r of the given annual interest rate. Round your answer to the nearest 0.01%.
12% compounded monthly

Answer 1

The effective interest rate is defined here:
http://www.investopedia.com/terms/e/effectiveinterest.asp?lgl=no-infinite

\(effective~interest~rate=(1+i/12)^{12}-1\)
where i=12%, divide by 12 gives the "monthly rate", and raise to the power of 12 gives the total amount due after 12 months. Subtract one to remove the principal, giving the net interest paid.

Answer 2

Thank you!

Answer 3

welcome ^_^