Answer to Question #315382 in Financial Math for Zinhle

Question #315382

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

1
Expert's answer
2022-03-24T03:17:25-0400

Nominal interest rate ii

Effective interest rate rr

Compounded monthly nn =12


r=(1+in)n1r=(1+\frac{i}{n})^n-1


=(1+0.1112)121=(1+\frac{0.11}{12})^{12}-1

=(1.1157)121=0.1157×100=11.57%=(1.1157)^{12}-1=0.1157\times100=11.57\%

effective interest rate is 11.57%11.57\% per annum


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