Question

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?

Answer 1

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.