3 years ago

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

Mathematics

1 answer:

Leviafan [203]3 years ago

4 0

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

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