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March 25, 2017

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Find the effective rate corresponding to the given nominal rate. (Round your answer to the nearest hundredth of a percentage point.)
(a) 7%/year, compounded daily
%

(b) 6%/year, compounded monthly
%

  • math - ,

    (1+r)^365 =(1.07)
    1+r = 1.07^1/365
    1+r =1.00018538
    r = 0.0018538
    r = .185% daily


    (1+r)^12 = 1.06
    1+r = (1.06)^1/12
    1+r = 1.004867551
    r = 0.004867551
    r = .486% monthly

  • math - ,

    I disagree with angela's answer

    When they ask for the effective rate, they are asking for the annual rate which is equivalent to the given compounded rate . This effective rate is often called APR

    7% compounded dails
    i = .07/365 = .00019178
    let the effective rate be r

    1+r = 1.00019178)^365
    1+r = 1.0725
    r = .0725
    the effective rate is 7.25%

    for the 2nd ...

    i = .06/12 = .005
    1+r = 1.005^12 = 1.06168
    r = .06168 or appr 6.168%

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