Question

Find the effective interest rate for an investment that earns interest of 10% per annum if interest compounds I) yearly II) monthly iii) half yearly iv) bi-monthly

Answer 1

1)

$r=((1+\frac{10\%}{1\cdot100\%})^1-1)\cdot100\%=10.00\%.$

2)

$r=((1+\frac{10\%}{12\cdot100\%})^{12}-1)\cdot100\%=10.47\%.$

3)

$r=((1+\frac{10\%}{2\cdot100\%})^2-1)\cdot100\%=10.25\%.$

4)

$r=((1+\frac{10\%}{24\cdot100\%})^{24}-1)\cdot100\%=10.49\%.$