SOLUTION: A local bank advertises that it pays interest on savings accounts at the rate of 3% compounded monthly. Find the effective rate. Round answer to two decimal places. Choice answe

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Question 1046478: A local bank advertises that it pays interest on savings accounts at the rate of 3% compounded monthly. Find the effective rate. Round answer to two decimal places.
Choice answers:
a. 3.44%
b. 3.40%
c. 36%
d. 3.04%
Answer by robertb(5830) About Me  (Show Source):
You can put this solution on YOUR website!
To find the effective rate, solve the equation
%281%2B0.03%2F12%29%5E12+=+1%2Br
<===> 1.0025%5E12+=+1%2Br
===> r+=+1.030415957+-+1+=+0.030415957

===> the effective rate of interest is 3.04%, to two decimal places.