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

1 Answer
Jun 15, 2018

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

Explanation:

https://www.thecalculatorsite.com/articles/finance/compound-interest-formula.phphttps://www.thecalculatorsite.com/articles/finance/compound-interest-formula.php

"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