Thread: 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.

Originally Posted by star4822

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