An interest rate of 21% per year, compounded every 4 months, is equivalent to what effective...

An interest rate of 21% per year, compounded every 4 months, is equivalent to what effective rate per year? Show spreadsheet solutions

Expert Solution

r = 21%

The compounding period (m) = 12 / 4 = 3

Effective rate per year = (1 + r / m)^m - 1

= (1 + 0.21 / 3)³ - 1

= 1.225 - 1

= 0.225

= 22.5%

spreadsheet solutions:

r	21%
m	3
Effective rate per year	=EFFECT(21%,3)

r	21%
m	3
Effective rate per year	=0.225

Rahul Sunny answered 2 years ago

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