To calculate the effective interest rate per interest period when the nominal interest rate is 12% and it is compounded monthly, you can use the formula for the effective annual rate (EAR):

EAR = (1 + i/n)^(nt) - 1

where:
i = nominal interest rate = 12% = 0.12
n = number of compounding periods per year = 12 (monthly compounding)
t = number of years = 1 (since we're looking for the annual rate)

Substituting the values into the formula, we get:

EAR = (1 + 0.12/12)^(12*1) - 1

Solving this step by step:

1. Calculate the value inside the brackets: 1 + 0.12/12 = 1.01
2. Raise this value to the power of 12: 1.01^12 ≈ 1.126825
3. Subtract 1 from the result: 1.126825 - 1 = 0.126825

So, the effective interest rate per interest period (i.e., per month) is approximately 12.68%.

Question

To calculate the effective interest rate per interest period when the nominal interest rate is 12% and it is compounded monthly, you can use the formula for the effective annual rate (EAR):

EAR = (1 + i/n)^(nt) - 1

where:
i = nominal interest rate = 12% = 0.12
n = number of compounding periods per year = 12 (monthly compounding)
t = number of years = 1 (since we're looking for the annual rate)

Substituting the values into the formula, we get:

EAR = (1 + 0.12/12)^(12*1) - 1

Solving this step by step:

1. Calculate the value inside the brackets: 1 + 0.12/12 = 1.01
2. Raise this value to the power of 12: 1.01^12 ≈ 1.126825
3. Subtract 1 from the result: 1.126825 - 1 = 0.126825

So, the effective interest rate per interest period (i.e., per month) is approximately 12.68%.

Knowee AI · Accepted Answer

To calculate the effective interest rate per interest period when the nominal interest rate is 12% and it is compounded monthly, you can use the formula for the effective annual rate (EAR):

EAR = (1 + i/n)^(nt) - 1

where:
i = nominal interest rate = 12% = 0.12
n = number of compounding periods per year = 12 (monthly compounding)
t = number of years = 1 (since we're looking for the annual rate)

Substituting the values into the formula, we get:

EAR = (1 + 0.12/12)^(12*1) - 1

Solving this step by step:

1. Calculate the value inside the brackets: 1 + 0.12/12 = 1.01
2. Raise this value to the power of 12: 1.01^12 ≈ 1.126825
3. Subtract 1 from the result: 1.126825 - 1 = 0.126825

So, the effective interest rate per interest period (i.e., per month) is approximately 12.68%.

If nominal interest rate is 12% and it is compounded monthly, what is the effective interest rate per interest period?

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