Answer to Question #315382 in Financial Math for Zinhle

Question

An account pays interest at a nominal rate of 11% .Find the effecrive annual yield if interest is compounded monthly?

Answer 1

Nominal interest rate $i$

Effective interest rate $r$

Compounded monthly $n$ =12

$r=(1+\frac{i}{n})^n-1$

$=(1+\frac{0.11}{12})^{12}-1$

$=(1.1157)^{12}-1=0.1157\times100=11.57\%$

effective interest rate is $11.57\%$ per annum