Find the effective rate of interest corresponding to a nominal rate of 15% per year compounded monthly?

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Answer 1 · 2018-06-15T10:43:47

#"Difference in interest " = I_c - Is = 0.01P#

#"simple Interset " I_s = (P * n * r) /100#

#I_s = P * 1 * 0.15 = 0.15 P#

#"Compound Interest " I_c = P * (1 + (r/n))^(nt) - P#

#r = 15, n = 12, t = 1#

#I_c = P ( 1 + .15/12)^(12) - P#

#I_c = P(1 + 0.0125)^12 - P#

#I_c ~~ 1.16 P - P ~~ 0.16P#

#"Difference in interest " = I_c - Is = 0.16P - 0.15P = 0.01P#