document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1204110>Question 1204110</A>: <I><SPAN STYLE=\"word-break: break-all;\"> A savings association pays 4% interest compounded quarterly. What is the effective<BR>\n" );
document.write( "annual interest rate? </SPAN>\n" );
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document.write( "effective rate = (1 + r/n)^n - 1<BR>\n" );
document.write( "effective rate = (1 + 0.04/4)^4 - 1<BR>\n" );
document.write( "effective rate = 0.04060401<BR>\n" );
document.write( "effective rate = 0.0406\r<BR>\n" );
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document.write( "The effective rate is roughly 4.06%\r<BR>\n" );
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document.write( "Another approach\r<BR>\n" );
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document.write( "Let's say you deposit $100<BR>\n" );
document.write( "We'll calculate the account balance after 1 year when compounding the interest quarterly, at an annual rate of 4%.\r<BR>\n" );
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document.write( "A = P*(1+r/n)^(n*t)<BR>\n" );
document.write( "A = 100*(1+0.04/4)^(4*1)<BR>\n" );
document.write( "A = 104.060401<BR>\n" );
document.write( "A = 104.06\r<BR>\n" );
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document.write( "Then,<BR>\n" );
document.write( "interest = finalAmount - deposit<BR>\n" );
document.write( "interest = A - P<BR>\n" );
document.write( "interest = 104.06 - 100<BR>\n" );
document.write( "interest = 4.06\r<BR>\n" );
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document.write( "Divide that interest amount over the deposit to determine the effective rate<BR>\n" );
document.write( "effective rate = interest/deposit<BR>\n" );
document.write( "effective rate = 4.06/100<BR>\n" );
document.write( "effective rate = 0.0406<BR>\n" );
document.write( "We get the same value as in the previous section.<BR>\n" );
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