Question 1102179
you basically find the future value of the present amount of 1 for 1 year at the indicated compounding rate.


you then subtract 1 from that to get the effective interest rate.


your monthly compounding formula is:


A = p * (1 + r/n) ^ nt


A is the future value
p is the present value
r is the interest rate per year
n is the number of compounding periods per year
t is the number of years


with monthly compounding at 6% per year with p = 1 and t = 1, the formula becomes:


A = (1 + .06/12) ^ 12


solve for A to get A = 1.005 ^ 12 = 1.061677812


subtract 1 from A to get effective interest rate = .061677812 per year which is equal to 6.1678812% per year.


your continuous compounding formula is:


A = p * e ^ rt


A is the future value
p is the present value
r is the interest rate per year
t is the number of years


when p = 1 and t = 1 and r = .06, the formula becomes:


A = e ^ .06


solve for A to get A = 1.061836547


subtract 1 from A to get effective interest rate = .061836547 per year which is equal to 6.1836547% per year.


it looks like you did it ok with some minor differences between the way your presented your results and the way i presented mine.


if you're looking for the effective interest rate per year, then t should be equal to 1.


making p equal to 1 allows you to find 1 plus the interest rate.


subtracting 1 from that gets you the interest rate.


i would say you did ok.