Effective Intrest from nominal intrest rate

This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.

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July 15, 2020 at 6:42 pm #576927
lokeshdh00
Participant
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Hi sir, Your lectures are way better than reading textbook. There is a formula for everything in textbook even its not needed.
Q- The nominal intrest rateis 10% PER YEAR compounded on a monthly basis.
Req- A company is going to invest for 12 month what is the effective intrest rate ?
What i tried –
(0.1/12)^12 x100 but as i do (0.1/12)^12 it becomes zero.
The answer in book is – 10.47 %
July 16, 2020 at 8:43 am #576955
John Moffat
Keymaster
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The monthly rate is 0.1/12
If the annual rate is R, then 1+R = (1 x 0.1/12)^12 = 1.1047
Therefore R = 0.1047 or 10.47%
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