**Effective Rate**

The effective rate corresponding to a stated rate of interest r compounded m times per years is

r_{e} =

**Example:-**

A bank pays interest of 4.9% compounded monthly. Find the effective rate.

**Solution:-**

Use the formula given above with r = .049 and m = 12. The effective rate is

r_{e } =

= .050115577 = 5.01 %