The effective annual interest rate is 15%. A) What is the effective interest rate for two years (accumulated over 2 years with interest over interest)? ((1+15%)^2)-1= 32.25% B) What is the effective interest rate for ten years (accumulated over 10 years with interest over interest)? ((1+15%)^10)-1= 304.56% C) Assume interest is compounded monthly. What is the monthly interest rate? (1+15%)^1/12)-1= 1.17% ^ This does not seem right to me? D) What is the simple annual interest rate? 15%*12= 180% ^I'm not sure about this either E) What is the simple interest rate for 2 years? For 10 years? 15%*2*12 ? 15%*10*12 ? ^ I thought these might be the correct equations but the answers don't make sense to me for simple interest
Below are the answers I got for this question but I am unsure if I am doing these the right way. If not, could you show me the correct equation to use?
- The effective annual interest rate is 15%.
A) What is the effective interest rate for two years (accumulated over 2 years with interest over interest)?
((1+15%)^2)-1= 32.25%
B) What is the effective interest rate for ten years (accumulated over 10 years with interest over interest)?
((1+15%)^10)-1= 304.56%
C) Assume interest is compounded monthly. What is the monthly interest rate?
(1+15%)^1/12)-1= 1.17%
^ This does not seem right to me?
D) What is the simple annual interest rate?
15%*12= 180%
^I'm not sure about this either
E) What is the simple interest rate for 2 years? For 10 years?
15%*2*12 ?
15%*10*12 ?
^ I thought these might be the correct equations but the answers don't make sense to me for simple interest
Effective interest rate is a real return rate which an investor earned on savings due to compounding benefits. The effective interest rate is calculated by using the following formula:
Simple interest is the interest that is earned by the investor only on the initial amount of investment. There will be no compounding of interest in the calculation of simple interest. In other words, the investor does not earn interest on interest in the case of simple interest.
Here,
Annual Percentage Rate is 15%
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