Problem 901

Given the annual interest rate and the compounding period, find I, the interest rate per compounding period.

12% compounded monthly.

 

Solution:-

 

The interest rate per compounding period is i = \frac{r}{m} where r is the annual nominal rate and m is the number of compounding periods per year.

The interest is compounded monthly, so the compounding period is one month. There  are 12 months in one year.

m= 12

Divide the annual rate by the number of periods per year.

i= \frac{r}{m}

= \frac{12}{12}

=1 percent

The interest rate per compounding period is 1 percent  per month.

 

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