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March 30, 2017

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explain why a savings and loan association that pays a nominal rate of 4.5% interest, compounded daily, actually pays an effective rate of 4.6%.

  • personal finance - ,

    Because of daily compounding, the accumulated interest at the end of a year is 4.602%, not 4.5%.

    Actual APR = (1+.045/365)^365 = 1.04602

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