(1+r)^365 =(1.07)
1+r = 1.07^1/365
1+r =1.00018538
r = 0.0018538
r = .185% daily
(1+r)^12 = 1.06
1+r = (1.06)^1/12
1+r = 1.004867551
r = 0.004867551
r = .486% monthly
Find the effective rate corresponding to the given nominal rate. (Round your answer to the nearest hundredth of a percentage point.)
(a) 7%/year, compounded daily
%
(b) 6%/year, compounded monthly
%
2 answers
I disagree with angela's answer
When they ask for the effective rate, they are asking for the annual rate which is equivalent to the given compounded rate . This effective rate is often called APR
7% compounded dails
i = .07/365 = .00019178
let the effective rate be r
1+r = 1.00019178)^365
1+r = 1.0725
r = .0725
the effective rate is 7.25%
for the 2nd ...
i = .06/12 = .005
1+r = 1.005^12 = 1.06168
r = .06168 or appr 6.168%
When they ask for the effective rate, they are asking for the annual rate which is equivalent to the given compounded rate . This effective rate is often called APR
7% compounded dails
i = .07/365 = .00019178
let the effective rate be r
1+r = 1.00019178)^365
1+r = 1.0725
r = .0725
the effective rate is 7.25%
for the 2nd ...
i = .06/12 = .005
1+r = 1.005^12 = 1.06168
r = .06168 or appr 6.168%
2 answers