(1+.045/2)^2 - 1 = 4.55%
(1+.12/360)^360 - 1 = 12.75%
9. FIND THE EFFECTIVE RATE THAT IS EQUIVALENT TO:
i) 4 1/2 percent compounded semi annually
ii) 12 percent compounded daily
3 answers
is there any formula to solve this problem/effective rate.?
you know that the total amount for an interest rate of r compounded n times for t years is
(1+r/n)^(nt)
In this case, for #1, n=2 and r = .045, so the ending amount is
(1+.045/2)^(2*1)
then subtract off the original amount (1) to get just the interest.
(1+r/n)^(nt) - 1
(1+r/n)^(nt)
In this case, for #1, n=2 and r = .045, so the ending amount is
(1+.045/2)^(2*1)
then subtract off the original amount (1) to get just the interest.
(1+r/n)^(nt) - 1
1 answer