What is the correct way to annualize an interest rate in financial decisions?

Question

Question

Answer 1

Answer #1

Correct way to annualise an interest rate is by compounding the interest from each period

for eg, if the rate of interest is 1% per month,

Annual interest rate = ( 1+Interest rate )^12/ n -1

=(1+0.01)^(12/1) -1

= 12.68%

Answer 2

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