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Western Energy makes quarterly deposits into an
Chapter 4, Problem 4.12(choose chapter or problem)
Western Energy makes quarterly deposits into an accountreserved for purchasing new equipment 2yearsfrom now. The interest paid on the deposits is 12%per year, compounded monthly. (a) Identify the interestperiod, compounding period, and compoundingfrequency in the interest period. (b) Calculate the effectiveannual interest rate, that is, the APY.
Questions & Answers
QUESTION:
Western Energy makes quarterly deposits into an accountreserved for purchasing new equipment 2yearsfrom now. The interest paid on the deposits is 12%per year, compounded monthly. (a) Identify the interestperiod, compounding period, and compoundingfrequency in the interest period. (b) Calculate the effectiveannual interest rate, that is, the APY.
ANSWER:Step 1 of 3
The effective annual interest rate, in general, refers to the real return on the amount of savings of a depositor whenever the compounding is taken into consideration. Due to the effect of compounding, the effective interest rate gets increases over time.