Question

A $500 investment in a 12-month CD with an interest rate of 4.89% compounded monthly, earns $25.01 interest in

one year. What effective rate of interest does this investment earn?

Answer 1

Explanation:

Effective interest rate, r =
`(1+(i)/(n) )^(n)-1`
Here,
r = effective annual rate
i = nominal rate
n = number of periods

r =
`(1+(0.0489)/(12) )^(12)-1`

= 0.05001099558

= 5.001099558 %