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you agree to make 24 deposits of $500 at the beginning of each month into a bank account. at the end of the 24th month, you will have $12,800 in your account. if the bank compounds interest monthly, what nominal annual interest rate will you be earning?

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Tundexi

The nominal annual interest rate is

Let understand that nominal annual interest rate is an interest rate derived before taking inflation into account and are also called the Annualized Percentage Rate (APR).

  • Here, we are going to calculate the Nominal annual interest rate using the Microsoft Excel function.

  • The information given are as follows: NPER = 24, PMT = 500, PV = 0, FV = $12,800. Type = 1 [Ending 0. Beginning 1]

Nominal annual interest rate = Rate(Nper, pmt, pv, ff, type] * 12

Nominal annual interest rate = Rate{24, 500, 0, -12,800, 1] * 12

Nominal annual interest rate = 0.0051 * 12

Nominal annual interest rate = 0.0612

Nominal annual interest rate = 6.12%

In conclusion, our nominal annual interest rate to be earned is 6.12%.

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