Barbara invested $12,300 at the Midtown Credit Union at 6% compounded monthly for 7 years. What is the effective rate of this investment?

Answer 1

Use compound interest formula:
monthly interest, i = 0.06/12=0.005
period, n = 7*12=84
Principal, P=1000 (say)
Future value
=P(1+i)^84
=1000*(1.005)^84
=1520.370
Effective rate (= average interest per year)
=((1520.370-1000)/7)/1000
=0.0743 p.a.

Answer 2

Sorry, Reiny is right.
What I calculated could be called "average rate of return".
Effective rate is calculated for one year only.
See:
http://www.jiskha.com/display.cgi?id=1397777653

Answer 3

Thank you very much!