Question

In: Finance

Bank A pays 15% interest, compounded monthly, on its money market account. What is the effective...

Bank A pays 15% interest, compounded monthly, on its money market account. What is the effective annual rate?

Solutions

Expert Solution

Annual interest=15% compounded monthly

=1.25% per month compounded monthly

Hence effective annual rate=(1+monthly rate)^12-1

=(1+0.0125)^12-1

=1.160755-1=0.160755=16.0755%


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