Question

A bank quotes an interest rate as 0.06341 annual effective yield. What interest rate, compounded monthly, will provide that

annual effective interest rate? Round your answer to five decimal places and do not round any intermediate calculations to
less than seven decimal places.

Answer 1

The interest rate, compounded monthly, that will provide an annual effective interest rate of 0.06341 is approximately 0.005269.

Step-by-step explanation:

To find the interest rate, compounded monthly, that will give an annual effective interest rate of 0.06341, we can use the formula:

Monthly Interest Rate = ((1 + Annual Interest Rate)^(1/12)) - 1

Substituting the given annual effective interest rate, we have:

Monthly Interest Rate = ((1 + 0.06341)^(1/12)) - 1

Calculating this value gives the monthly interest rate to be approximately 0.005269.

Answer 2

9514 1404 393

Answer:

0.06164

Step-by-step explanation:

The effective annual rate obtained by compounding nominal annual rate r monthly is ...

eff rate = (1 +r/12)^12 -1

Then the value of r is ...

r = 12×((eff rate) +1)^(1/12) -1)

For the given effective rate, that is ...

r = 12×(1.06341^(1/12) -1) ≈ 0.06164 . . . . nominal annual interest rate