Here's the problem:

What nominal rate compounded monthly has the same Annual Percentage Yield as 7% compounded quarterly?

How would I go about solving this?

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- Oct 8th 2009, 04:48 PM #1

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- Oct 8th 2009, 06:10 PM #2

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i = Annual Nominal Rate to be compounded monthly

The description of 7% is inadequate. Is that 7% quarterly or 7% Nominal Annual to be compounded quarterly? Let's go with the latter and we are nearly done.

j = i/12 = Monthly interest rate

k = 0.07/4 = Quarterly interest rate for 7%

Solve for j

$\displaystyle (1+j)^{12}\;=\;(1+k)^{4}$

Solve for i.