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 ³ 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 com-pounding,iscalledthe effectiveinterestrate ,whichwedenote re .Therelationship between re and ( r , m ) is developed as follows A (1 + re ) = A ³ 1 + r m ´ m i . e . re = ³ 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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- Fall '11
- Economics, yn, Mathematica, 1 M, recursive equations, DISCRETE DYNAMIC SYSTEMS