If the effective annual interest rate of a loan is 14.6%, what is the nominal annual interest rate, correct to one decimal place, if interest compounds monthly?

Question

asked Apr 25, 2022 100k views

1 Answer

Franzl · Answer 1 · 2022-04-30T06:03:40+0000

Answer:

13.7%

Explanation:

Nominal interest rate =
$(\sqrt[m]{1 + effective annual interest rate} - 1 \ ) m$

where m = number of compounding = 12

(
$\sqrt[12]{1.146}$ - 1 ) x 12 = 0.137054 = 13.7%

To round to one decimal place means that there should be only one figure after the decimal place.