Class Examples Of Various Interest Rates

**Effective Annual Interest Rates**

1. 6% per year compounded monthly; e.g. house mortgage

$\left( \frac {.06}{12} +1 \right)$^{12} - 1 = 6.17%

2. 2% per month compounded daily; e.g. credit card

$\left( \frac {.02}{30} +1 \right)$^{365} - 1 = 27.54%

3. 2% per year compounded daily; e;g; savings account

$\left( \frac {.02}{365} +1 \right)$^{365} - 1 = 2.02%

4. One for Eight weekly; e.g. your friendly loan shark.

essentially this means that for every eight dollars you borrow, you owe one dollar per week for this loan; this translates into 12.5% per week compounded weekly

$\left( \frac {.125}{1} +1 \right)$^{52} - 1 = 45,601.57%

page revision: 1, last edited: 25 Feb 2010 14:15