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Unformatted text preview: t , P t , is given by P t = A (1 + r ) t On the other hand, if it is compounded m times each year, then the payment received is P t = A 1 + r m mt If compounding is done more frequently over the year, then the amount received is larger. The actual interest rate being paid, once allowance is made for the compounding,iscalledthe effectiveinterestrate ,whichwedenote re .Therelationship between re and ( r , m ) is developed as follows A (1 + re ) = A 1 + r m m i . e . re = 1 + r m m 1 It follows that re r . 5 See section 3.13 on solving recursive equations with Mathematica and Maple ....
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This note was uploaded on 12/14/2011 for the course ECO 3023 taught by Professor Dr.gwartney during the Fall '11 term at FSU.
 Fall '11
 Dr.Gwartney
 Economics

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