Find the nominal interest rate that, when compounded monthly, yields an effective interest rate of 16% / year. Round your answer to two decimal places.
A) 14.93%
B) 14.85%
C) 15.12%
D) 15.41%

Question

Find the nominal interest rate that, when compounded monthly, yields an effective interest rate of 16% / year. Round your answer to two decimal places. ​
A) 14.93%
B) 14.85%
C) 15.12%
D) 15.41%

Quizplus · Accepted Answer

The effective interest rate (EIR) can be calculated from the nominal interest rate (r) compounded monthly using the formula: $EIR = (1 + \frac{r}{12})^{12} - 1$. Given an EIR of 16% (or 0.16), we solve for r: $1.16 = (1 + \frac{r}{12})^{12}$. Solving for r gives approximately 0.1493 or 14.93%.

Find the Nominal Interest Rate That, When Compounded Monthly, Yields