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What simple interest rate is equivalent to a compound interest rate of 6% p.a. over 10 years correct to two decimal places?

  • Maths -

    Let's compare the value of $1 at the end of 10 years at both types of interest:

    compound: Value = 1(1.06)^10

    simple: let the rate be r
    interest = 1(10)(r) = 10r
    value = 1 + 10r

    so 1 + 10r = 1.06^10
    10r = 1.790847... - 1
    r = .0790847...
    rate = 7.91% to 2 decimals

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