Savings institutions often state a nominal rate, which can be thought of as a simple annual interest rate, and the effective interest rate, which is the actu interest rate earned due to compounding. Given the nominal rate, it is easy to calculate the effective interest rate as follows. Assume that $1 is invested an account paying an interest rate of 6% compounded monthly. Using the compound interest formula A = P1+ A=P[1 + )" n 12 n= 12, A= 1+- 0.06 12 a nominal yield of 7%, compounded daily. with P= 1, r=0.06, m = 12, and 1.0617. So the effective interest rate is 1.0617-1=0.0617, or 6.17%. Find the effective interest rate for the investments with The effective annual yield is% (Round to two decimal places as needed)
Savings institutions often state a nominal rate, which can be thought of as a simple annual interest rate, and the effective interest rate, which is the actu interest rate earned due to compounding. Given the nominal rate, it is easy to calculate the effective interest rate as follows. Assume that $1 is invested an account paying an interest rate of 6% compounded monthly. Using the compound interest formula A = P1+ A=P[1 + )" n 12 n= 12, A= 1+- 0.06 12 a nominal yield of 7%, compounded daily. with P= 1, r=0.06, m = 12, and 1.0617. So the effective interest rate is 1.0617-1=0.0617, or 6.17%. Find the effective interest rate for the investments with The effective annual yield is% (Round to two decimal places as needed)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Savings institutions often state a nominal rate, which can be thought of as a simple annual interest rate, and the effective interest rate, which is the actual
interest rate earned due to compounding. Given the nominal rate, it is easy to calculate the effective interest rate as follows. Assume that $1 is invested in
n
an account paying an interest rate of 6% compounded monthly. Using the compound interest formula A = P1+
12
(₁
0.06
12
a nominal yield of 7%, compounded daily.
n = 12, A =
1+
Save
%
The effective annual yield is
(Round to two decimal places as needed.)
with P = 1, r=0.06, m = 12, and
1.0617. So the effective interest rate is 1.0617-1 = 0.0617, or 6.17%. Find the effective interest rate for the investments with
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