Answer to Question #255017 in Financial Math for Jatt

Question

With j1=7.6%, what is equivalent j12?

Answer 1

j1=7.6%

An Interest rate compounded annually is equivalent to an Effective Annual RATE(EAR).

Calculating Nominal Interest rate compounded monthly(j₁₂) using EAR formula:-

EAR$=(1+r/m)^m-1$

Where, r = Nominal Interest rate

m = no of times compounding in a year = 12

$0.076=(1+r/12)^{12}-1$

$1.076=(1+r/12)^{12}$

$1.076^{1/12}=1+r/12$

$1.0061-1=r/12$

$0.0061=r/12$

$r=0.0732=7.32\%$

$j_{12}=7.32\%$