What is the effective annual rate of 10% compounded monthly?
1. 9.27%
2. 10.00%
3. 10.25%
4. 10.38%
5. 10.47%
Annual Rate = 10%
Interest rate per period = 10% / 12
= 0.8333%
Effective Annual rate = [( 1 + Interest rate per period) ^ Number of Compounding] - 1
= ( 1 + 0.8333%)^12 - 1
= ( 1.0083333) ^ 12 - 1
= 1.1047126 - 1
= 0.104712 or 10.4712%
Rounded to two decimals = 10.47% [ Option E is the correct answer]
What is the effective annual rate of 10% compounded monthly? 1. 9.27% 2. 10.00% 3. 10.25%...
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