Example1. Find Effective interest rate, for Nominal interest rate i = 10%, Compounded (n) = Monthly (12/year)
Solution:
`i=10%=0.1` per year (Nominal interest rate)
`n=12` (Number of periods)
Effective interest rate `i_(eff)=(1+i/n)^n-1`
`=(1+0.1/12)^12-1`
`=(1+0.0083)^12-1`
`=(1.0083)^12-1`
`=1.1047-1`
`=0.1047`
`I_(eff)=i_(eff) xx 100=0.1047xx100=10.47 %`
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