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Math Help - Finance question

  1. #1
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    Finance question

    I have no idea how to do this..please help me out.

    Alice has a savings account that pays 6% annual interest, compounded monthly. What is the effective annual interest rate? Round your answer to 2 decimal places.
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  2. #2
    Grand Panjandrum
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    Quote Originally Posted by star4822 View Post
    I have no idea how to do this..please help me out.

    Alice has a savings account that pays 6% annual interest, compounded monthly. What is the effective annual interest rate? Round your answer to 2 decimal places.
    Monthly interest is r=0.5%, 1 year is 12 periods, so if P is the principle, after
    1 year Alice has: P1 = P (1+r/100)^12 = P 1.061678.

    Which is equivalent to ~6.168% effective annual interest rate.

    RonL
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