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Financial Maths monthly interest

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  • 02-06-2013 6:58pm
    #1
    HPMS
    Registered Users Posts: 141 ✭✭


    When you guys are finding the monthly interest rate in financial maths...how do you do it?

    I always did it like this:

    If the AER was say 10% I would take P to be 1 and F to be 1.1 and t to be 12...

    So F = P(1+i)^t
    1.1 = 1(1+i)^12

    Working i out to be.... 0.00797

    But a marking scheme from the examcraft mock just divided the AER by 12 and got a completely different answer. Is the way I've been taught completely wrong??


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    #2
    Monsieur Folie
    Registered Users Posts: 1,988 ✭✭✭Monsieur Folie


    No, your way is the way I was taught it as well. We were also told that if we got a big messy decimal that we were to keep it all (I just store it to a letter on the calculator) because it can affect the overall result if you round it off!


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    #3
    11Charlie11
    Registered Users Posts: 941 ✭✭✭11Charlie11


    Ya i do it your way aswell and got the same answer :)


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    #4
    HPMS
    Registered Users Posts: 141 ✭✭HPMS


    Thanks guys! Really appreciate the help. Was starting to freak out there! :)


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    #5
    Undeadfred
    Registered Users Posts: 301 ✭✭Undeadfred


    I do the 12th root of 1+i and i keep it like that for all calculations so no decimal places are lost

    So for 10%, i'd do 12th root(1.1) or (1.1)^1/12


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