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You are offered an investment with a quoted annual interest rate of 10% with monthly compounding of interest. What is your effective annual interest rate?
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3 votes
You are offered an investment with a quoted annual interest rate of 10% with monthly compounding of interest. What is your effective annual interest rate?

User Sonxurxo
by
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1 Answer

3 votes

Answer:

10.47%

Step-by-step explanation:

Effective interest rate = (1+ i/n)^n - 1

i: Stated interest rate

n: Number of compounding periods per year

Effective annual interest = (1+10%/12)^12 - 1

= 10.47%

User Kathick
by
5.3k points
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