What Is the Effective Interest Rate Corresponding to a Nominal

question 4

Short Answer

What is the effective interest rate corresponding to a nominal annual rate of:
a. 4% compounded monthly?
b. 8% compounded monthly?
c. 12% compounded monthly?

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Definitions:

Interest Rate

The percentage at which interest is paid by a borrower for the use of money, or what a lender earns on an investment, over a specific period.

Loan

A sum of money that is lent and is due to be repaid along with interest.

Interest

The charge for borrowing money, typically expressed as an annual percentage of the principal, or the amount earned on invested funds.

Invested

Funds that have been allocated for a particular purpose, especially in financial instruments like stocks, bonds, or real estate with an expectation of generating a return.