Dr. Fu Manchu has a bank account that has an annual interest rate of 6 percent, but it compounds monthly. If this is equivalent to a bank account that compounds annually at a rate of $r$ percent, then what is $r$? (Give your answer to the nearest hundredth.)

Guest Aug 6, 2018

6% compounded monthly =[1 + 0.06/12]^12 =1.005^12=1.061678 - 1 x 100 =6.1678% Effective annual rate, which is equivalent to the rate of "r" compounded annually. In other words, 6% compounded monthly = 6.17%, or bank's rate of "r" compounded annually.

Guest Aug 6, 2018
edited by Guest  Aug 6, 2018

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