Answer to Question #150424 in Financial Math for EL-FRIDA

Question #150424
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
1
Expert's answer
2020-12-13T17:17:02-0500

1)

r=((1+10%1100%)11)100%=10.00%.r=((1+\frac{10\%}{1\cdot100\%})^1-1)\cdot100\%=10.00\%.

2)

r=((1+10%12100%)121)100%=10.47%.r=((1+\frac{10\%}{12\cdot100\%})^{12}-1)\cdot100\%=10.47\%.

3)

r=((1+10%2100%)21)100%=10.25%.r=((1+\frac{10\%}{2\cdot100\%})^2-1)\cdot100\%=10.25\%.

4)

r=((1+10%24100%)241)100%=10.49%.r=((1+\frac{10\%}{24\cdot100\%})^{24}-1)\cdot100\%=10.49\%.


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