ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If interest is compounded monthly, then ____
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n = 1
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n = 2
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n = 12
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n = 4
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Explanation:
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: -If the interest is compounded monthly, n is 12. Continuous Compound Interest Formula. This is used for interest which is compounded continuously.
Detailed explanation-3: -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%.
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