ECONOMICS
COMPOUND INTEREST
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
11
|
|
|
10
|
|
|
12
|
|
|
13
|
Detailed explanation-1: -"12% interest compounded monthly” means that the interest rate is 12% per year (not 12% per month), compounded monthly. Thus, the interest rate is 1% (12% / 12) per month.
Detailed explanation-2: -The APY for a 1% rate of interest compounded monthly would be 12.68% [(1 + 0.01)^12 – 1 = 12.68%] a year. If you only carry a balance on your credit card for one month’s period, you will be charged the equivalent yearly rate of 12%.
Detailed explanation-3: -If interest is compounded yearly, then n = 1; if semi-annually, then n = 2; quarterly, then n = 4; monthly, then n = 12; weekly, then n = 52; daily, then n = 365; and so forth, regardless of the number of years involved.
Detailed explanation-4: -Monthly Interest Rate Calculation Example To calculate a monthly interest rate, divide the annual rate by 12 to reflect the 12 months in the year. You’ll need to convert from percentage to decimal format to complete these steps.