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Medina Newton

22/03/2021 · Senior High School

An equation of the form \(y = 6000 ( 1.06 ) ^ { x } \) provides an example of interest compounded annually. This means that the full \(6 \% \) of interest is added to the account at the end of one year. This doesn't sound very fair to someone that invests their money for \(11\) months-they get no Interest at all. This became a competitive disadvantage for financial institutions, and some began to divide the annual interest into periodic shares, so that (for example) you could get \(1/12^ { th} \) of that \(6 \% \) each month. When this happens, we say that interest is compounded monthly. Interest can also be compounded weekly (52 times per year), quarterly ( \(4\) times per year), daily ( \(365\) times per year), or really any other period you could think of. 

If interest is compounded monthly, what growth factor would be needed to provide \(1/12^ { th} \) of \(6 \% \) interest each month? (Think about the difference between interest rate and growth factor.) 

The growth factor would be \(\square \) 

Answer
expertExpert-Verified Answer

Schofield Ryan
Competent Tutor
4.0 (15votes)

1.005

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