Choose the one alternative that best completes the statement or answers the question.
Find the effective rate of interest.
-12.25% compounded monthly
A) 12.962%
B) 12.373%
C) 13.155%
D) 12.455%

Question

Quizplus · Accepted Answer

The effective rate of interest, when interest is compounded monthly, can be calculated using the formula $ (1 + \frac{r}{n})^{n} - 1 $, where $ r $ is the annual nominal rate (as a decimal) and $ n $ is the number of compounding periods per year. For 12.25% compounded monthly, $ r = 0.1225 $ and $ n = 12 $. Plugging these values into the formula gives $ (1 + \frac{0.1225}{12})^{12} - 1 \approx 0.12962 $ or 12.962% when converted to a percentage.

Choose the One Alternative That Best Completes the Statement or Answers