Precalculus: Concepts Through Functions, A Unit Circle Approach to Trigonometry (3rd Edition)

Published by Pearson
ISBN 10: 0-32193-104-1
ISBN 13: 978-0-32193-104-7

Chapter 4 - Exponential and Logarithmic Functions - Section 4.7 Financial Models - 4.7 Assess Your Understanding - Page 346: 24


$6.168 \%$

Work Step by Step

Recall: Effective Rate of Interest Formula $$r_e = \left(1+\dfrac{r}{n} \right)^n - 1$$ where $r_e:$ Effective Rate of Interest $r:$ Annual Interest Rate $n:$ Number of compoundings per year The given problem has: $r = 0.06$ $\text{Compounded monthly} \to n = 12$ Thus, using these valules and the formula above gives: $r_e = \left(1+\dfrac{0.06}{12} \right)^{12} - 1$ $r_e \approx 0.06168$ $r_e \approx 6.168 \%$
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