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The effective interest rate of receiving 10% interest per annum compounded on a monthly basis for 12 months is the same as receiving 10.47 % interest per annum with no compounding
Please explain this with an example sir thank you
10% per annum is equivalent to 10/12 = 0.8333% per month.
If it is compounded, then the yearly equivalent is (1.008333)^12 -1 = 0.1047 (i.e. 10.47%)
I do explain this in my free lectures on interest 🙂
10% compounded on a monthly basis means what sir
Does that 10% in month 1
And in month two 10% + 10% = 20%
Please guide sir
It means that when interest is added then the interest in the following month is on the whole amount.
Again, I explain this in my free lectures and you cannot really expect me to type them all out here 🙂