Question

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

Answer 1

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