Chapter 4, Problem 25RE

### Calculus: An Applied Approach (Min...

10th Edition
Ron Larson
ISBN: 9781305860919

Chapter
Section

### Calculus: An Applied Approach (Min...

10th Edition
Ron Larson
ISBN: 9781305860919
Textbook Problem
1 views

# Effective Rate Find the effective rate of interest corresponding to a nominal rate of 4% per year compounded (a) annually, (b) semiannually, (c) quarterly, and (d) monthly.

(a)

To determine

To calculate: The effective rate of interest for the nominal rate of 4% per year in which interest is compounded annually.

Explanation

Given Information:

The nominal rate is 4% per year in that interest is compounded annually.

Formula used:

The formula to compute the effective rate of interest is,

reff=(1+rn)n1

Where, reff is the effective rate of interest, r is the interest rate and n is the number of times compounded per year.

Calculation:

Consider that the nominal rate is 4% per year in which interest is compounded annually.

Here, r=4%.

The number of times compounded per year is 1 as the interest is compounded annually, that is, n=1.

Simplify the rate as,

r=4%=4100=0.04

Substitute 1 for number of times compounded per year and 0

(b)

To determine

To calculate: The effective rate of interest for the nominal rate of 4% per year in which interest is compounded semiannually.

(c)

To determine

To calculate: The effective rate of interest for the nominal rate of 4% per year in which interest is compounded quarterly.

(d)

To determine

To calculate: The effective rate of interest for the nominal rate of 4% per year in which interest is compounded monthly.

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