Find the effective rate of interest 5011 compounded dailySol

Find the effective rate of interest. 50.11% compounded daily

Solution

50.11% is the \"nominal\" rate of interest. It\'s compounded daily.

To find the effective rate, you need to find the accumulation factor for 1 year.

That would be (1 + 0.5011/365)^365 = 1.649968736.

So the effective rate is 64.9968736%, or 65.00% rounded to 2 places. $100 invested at this rate would grow to $165.00, clearly showing that 65% is the effective rate.

Whenever you have rates compounded at any frequency other than annually, you have to distinguish between nominal rates and the actual effective rate, which takes into consideration the benefit of compounding.