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?
What is the effect rate of this investment?
Answers
Reiny
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!
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!