Part A. We are asked to determine the effective interest rate given the nominal interest rate. To do that we will use the following formula:
Where:
Now, since we are given that the interest rate is compounded monthly this means that the value of "n" is:
Now, the interest rate in decimal form is determined by dividing the interest rate by 100, like this:
Now, we plug in the values:
Now, we solve the operations:
In percentage form is 5.9567%
Part B. If the interest rate is compounded continuously we use the following formula:
Plugging in the values we get:
Solving the operations:
In percentage form we get 5.9715%