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Math Help - Effective interest rate

  1. #1
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    Effective interest rate

    Nominal rate and compounding frequency Effective rate (%)
    ? compounded monthly 10.5

    what i did was

    i = j/m > 0.105 = j / 12 which = 1.26

    f = ( 1 + i ) ^ m F = ( 1 + 0.0126 ) ^ 12 - 1 = 16.21%

    the book is giving the answer of 10.03%
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  2. #2
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    Quote Originally Posted by diehardmath4 View Post
    Nominal i = j/m > 0.105 = j / 12 which = 1.26
    Huh? .105 / 12 = .00875

    1.00875^12 - 1 = .1102... so ~11.02%
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  3. #3
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    Given: f = 10.5% = 0.105 Find i and j, m = 12

    i = (1 + f)^(1/m) - 1

    i = (1 + 0.105)^(1/12) - 1 = 0.00836 = 0.836%

    i = j/m => j = mi = 12(0.836%) = 10.03% compounded monthly
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  4. #4
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    Quote Originally Posted by diehardmath4 View Post
    Given: f = 10.5% = 0.105 Find i and j, m = 12
    Is that so?! Your 1st post said:
    "Nominal rate and compounding frequency Effective rate (%)
    ? compounded monthly 10.5"

    That sure seems to say 10.5 is compounding.

    BUT IF you're looking for the rate that results in 10.5%
    AFTER compounding, then 10.03% is correct.
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