Find the effective annual interest rate of 17% compounded monthly.
A)18.50%
B) 18.39%
C) 18.11%
D) 18.53%
E) 17.72%

Question

Find the effective annual interest rate of 17% compounded monthly. ​
A)18.50%
B) 18.39%
C) 18.11%
D) 18.53%
E) 17.72%

Quizplus · Accepted Answer

We can use the formula for effective annual interest rate:

Effective annual rate = (1 + (nominal rate / m))^m - 1

where nominal rate is the stated annual interest rate and m is the number of compounding periods in a year.

In this case, nominal rate = 17% and m = 12 (since it's compounded monthly).

Plugging in the values, we get:

Effective annual rate = (1 + (0.17 / 12))^12 - 1 ≈ 0.1839 or 18.39%

Therefore, the answer is B.

Find the Effective Annual Interest Rate of 17% Compounded Monthly