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bigduckontax
bigduckontax, Accountant
Category: Tax
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Please could you calculate the AER effective rate assuming

Customer Question

Please could you calculate the AER effective rate assuming your recieve 3% paid semi annually? I have the answer as 6.09 but when entering on a calculator the answer states otherwise so obviously I am doing something wrong. thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
Please advise the initial amount invested, the terminal value and the number of years involved. With this information I can assist you.
Customer: replied 2 years ago.

Hi

this is a question provided by my tutor.

So no initial amount invested has been provided but this would be for 1 year.

The formula provided for the calculation of interest is the following:

AER = (1+periodic rate)n-1

n = number of compounding periods in the year

Does that help? The answer provided is below yet when I input into calculator i get a different answer

Semi-annual compounding:

AER= (1+0.03)2-1

AER= (1.03)2-1

AER= 0.0609

AER= 6.09%

Expert:  bigduckontax replied 2 years ago.
CalculatorSoup comes out with exactly the same figure so you would appear to be correct. You can find their calculator here:
http://www.calculatorsoup.com/calculators/financial/effective-annual-rate-calculator.php
I do hope that I have been of assistance.
Customer: replied 2 years ago.

Thank you. the formula is explained as I already know but entering that on my calculator still provides the incorrect answer. maybe the mode is incorrect.

best

Expert:  bigduckontax replied 2 years ago.
Delighted to have been of assistance.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.