Compounded

Lets say your nominal annual interest rate is 8% and it is compounding monthly.

 

then

 

\((1+\frac{0.08}{12})^{12}=(1+r)^1\\ 1.0829995\approx1+r\\ r\approx 0.0829995\)

 

So the effective interest rate would be approximately  8.3%

An accunt pays interest at a nominal rate of 8% per year. Find the effective annual yield if interest is compounded.

 

You don't give the period of compounding!! Is it monthly, weekly, daily, annually, semi-annually....etc.

However, here are a few common ones:

1-Monthly compound=8.30% effective annual rate.

2-Daily compound.....=8.33% ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.

3-Semi-annual comp.=8.16%,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.