# compound interest

• Nov 18th 2010, 05:21 PM
math321
compound interest
dont understand this compound interest question
can some1 guide me through this

Find the effective rate of interest.
11.75% compounded monthly
• Nov 18th 2010, 06:46 PM
Robb
The amount is stated in a nominal yearly rate, which is compounded 12 times a year..
The effective monthly rate is simply;
$i_{12}=\frac{0.1175}{12}=0.009791667$

So assuming you wanted the annual effective rate of interest, which is where the monthly effective rate is compounded 12 times;
$i=\left(1+\frac{0.1175}{12}\right)^{12}-1=12.4039\%$
• Nov 18th 2010, 06:57 PM
math321
so what am i going to solve for
what do i do from here
• Nov 18th 2010, 08:08 PM
Wilmer
Quote:

Originally Posted by math321
so what am i going to solve for
what do i do from here

Nothing more to do: Robb gave you the answer: 11.75 cpd monthly = 12.4039 effective