Precalculus (10th Edition)

Published by Pearson
ISBN 10: 0-32197-907-9
ISBN 13: 978-0-32197-907-0

Chapter 5 - Exponential and Logarithmic Functions - 5.7 Financial Models - 5.7 Assess Your Understanding - Page 321: 24



Work Step by Step

The effective rate of interest ($r_e$), is given by the formula $r_e=(1+\frac{r}{n})^n-1$ where $r$ is the annual interst rate and $n$ is the number of compounding periods per year. Use the formula above to obtain: $r_e=\left(1+\frac{0.06}{12}\right)^{12}-1\\ r_e=1.06167781186-1\\ r_e=0.06167781186\\ r_e \approx 6.17\%$
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