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I am reviewing my first midterm and my professor did not provide the solutions to the problems on the midterm when she returned the exam. So I need help with one of the problems I got wrong and am still struggling on.

"Your are given a discount rate d (2) = 6%. Find the annual effective rate of interest i?"

In the previous question which was very similar to this one. The question asked for i, given d = 6%. This problem have been able to find by simply using the equation i = d/(1-d). Using this equation I was able to find i = 6.383%. However, now the d has a superscript and I am unable to figure out which equation I am supposed to use can some help me?

rex1637
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1 Answers1

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HINT: A discount rate applied $n$ times over equal subintervals of a year is found from the annual effective rate $d$ as

$$ 1-d = \left(1-\frac{d^{(n)}}{n}\right)^n$$

where $d^{(n)}$ is called the annual nominal rate of discount convertible $n$-thly (payable $n$ times per period).

alexjo
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