Homework Help Forum: Investing

Posted by Viktor on Thursday, March 27, 2008 at 6:12pm.

Interest of 12% per year compounded monthly is roughly equivalent to an interest rate of 12.68% per year compunded yearly when using the formula: A=p(1+r/n)^nt If you solve the problem the two are equal; how can you derive 12.68% compounded yearly from 12% per year compounded monthly?

• Investing - Reiny, Thursday, March 27, 2008 at 9:17pm

  Let the rate compounded yearly be i then (1+i)^1 = (1+.12/12)^12 1+i = 1.01^12 1+i = 1.126825 i = .1268.. so the annual rate is 12.68%

  
  

• Investing - Viktor, Thursday, March 27, 2008 at 10:09pm

  Thank you very much, that was most helpful.

  
  

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