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The effective rate equivalent to nominal rate of 6% compounded monthly is?
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Effective Rate Equivalent to Nominal Rate of 6% Compounded Monthly
Nominal rate and effective rate are two important concepts in finance. Nominal rate refers to the stated rate of interest on a financial instrument, while the effective rate takes into account the compounding frequency of interest. In order to calculate the effective rate equivalent to a nominal rate of 6% compounded monthly, we need to follow the steps below:
Therefore, the effective rate equivalent to a nominal rate of 6% compounded monthly is 6.17%.
In summary, the effective rate takes into account the compounding frequency of interest and provides a more accurate measure of the true cost of borrowing or the true return on an investment. By following the above steps, we can easily calculate the effective rate equivalent to a given nominal rate compounded at a specific frequency.
Nominal rate and effective rate are two important concepts in finance. Nominal rate refers to the stated rate of interest on a financial instrument, while the effective rate takes into account the compounding frequency of interest. In order to calculate the effective rate equivalent to a nominal rate of 6% compounded monthly, we need to follow the steps below:
- Convert the nominal rate to a periodic rate. In this case, the nominal rate is 6% per year, compounded monthly. The periodic rate is therefore 6%/12 = 0.5% per month.
- Calculate the effective rate using the formula:
Effective Rate = (1 + Periodic Rate)^n - 1
where n is the number of compounding periods in a year. In this case, n = 12 (since interest is compounded monthly).
Therefore, the effective rate is:
Effective Rate = (1 + 0.5%)^12 - 1 = 6.17%
Therefore, the effective rate equivalent to a nominal rate of 6% compounded monthly is 6.17%.
In summary, the effective rate takes into account the compounding frequency of interest and provides a more accurate measure of the true cost of borrowing or the true return on an investment. By following the above steps, we can easily calculate the effective rate equivalent to a given nominal rate compounded at a specific frequency.
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The effective rate equivalent to nominal rate of 6% compounded monthly...
6.17%
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The effective rate equivalent to nominal rate of 6% compounded monthly is?
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The effective rate equivalent to nominal rate of 6% compounded monthly is? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The effective rate equivalent to nominal rate of 6% compounded monthly is? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The effective rate equivalent to nominal rate of 6% compounded monthly is?.
The effective rate equivalent to nominal rate of 6% compounded monthly is? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The effective rate equivalent to nominal rate of 6% compounded monthly is? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The effective rate equivalent to nominal rate of 6% compounded monthly is?.
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