Financial Maths monthly interest

HPMS

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??

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!

11Charlie11

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

HPMS

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

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