Question

Effective interest rate of $33,353 at 7% for 18 months?

Answer 1

Hence , the effective interest rate R = 0.0723 = 7.23 %

Step-by-step explanation :

Given as,

The Principal amount = $33,353

The stated interest rate (i) = 7% = 0.07

Number of compounding months (n) = 18

Now, The effective interest rate is calculated as ,

R =
`( 1 + (i)/(n) )^n` - 1

Or, R = (
`( 1 + (0.07)/(18))^(18)` - 1

Or, R =
`( 1 + 0.388)^(18)` - 1

Or, R = 1.0723 - 1 = 0.0723

Hence , the effective interest rate R = 0.0723 = 7.23 % Answer