Question

Barbara invested $12,300 at the Midtown Credit Union at 6% compounded monthly for 7 years.

What is the effect rate of this investment?

Answer 1

If what you want is the effective annual rate, all we need is the 6% per annum compounded monthly

let the annual rate be i
then 1+i = (1 + .06/12)^12
1+i = 1.005^12 = 1.0616778..
i = .0616778

the effective annual rate correct to 3 decimals is
6.168 %

check:
amount of 12300 at 6% compounded monthly for 7 years
= 12300(1.005)^84 = $18,700.54
amount of 12300 at 6.616778% for 7 years
= 12,300(1.0616778)^7 = $18,700.54
the same!