 # Compounding question

1. If an investment of \$4000 will grow to \$6520 in 4 years with monthly compunding, the effective annual interest rate will be closest to: 1. 11.21% 2. 12.28% 3. 12.99% 4. 15.75%

12.99%

12.28 use months as your N input, find I/Y and multiply by 12.

strangedays Wrote: ------------------------------------------------------- > Dread I get 12.28% same here strange

Don’t multiply the monthly by 12:) Either: N=4, PV=-4000, FV=6520, PMT=0 for I/Y=12.99 or N=48, PV=-4000, FV=6520, PMT=0, I/Y=1.0231% monthly, for an annual of (1+1.0231%)^12 -1=12.99%

…because we need the effective annual?

pretty sure that when you get the monthly rate of 1.01023%, you take compound it montly over a year instead of multiplying it by 12 1.01023^12 - 1 = 12.99% instead of 1.023* 12 = 12.28%

Multiplying by 12 gives the annual percentage rate, APR, not the effective annual rate.

This was discussed before, just use the geometric formula.

Map is right Thanks all for your inputs. 12.99%.