Answer: the effective rate is 52.04%
Explanation:
the formula to calculate the future value with monthly compound interests is:
FV= P[ 1+r/n] ^ (n*t)
Where
FV= Future value
P= Principal or amount of money deposited
r=annual interest rate in decimal form
n= number of times compounded per year
t= time in years
We are only interested in the effective rate, so the relevant formula is:
[ 1+r/n] ^ (n*t) so, we replace [ 1+0.06/12] ^ (12*7)
[ 1+0.005] ^ (84) = 1.5204 we substract
1 to get the effective rate 1.5204-1 and the effective rate is 52.04%
