An effective 12.68% per year, compounded monthly is the closest to:

a. 12% per year

b. 12% per year, compounded annually

c. 1% per month

d. 1% per month, compounded annually

a. 12% per year

Explanation:

Effective interest rate

r = (1 + i/n) ^n - 1

r = effective interest rate

i = simple interest rate compounded monthly

n = number of compound intervals

12.68% = ((1+i/12) ^12) - 1)

1+0.1268 = ((1+i/12) ^12)

1.1268^ (1/12) = 1+i/12

1.010 = 1+i/12

1.010-1 = i/12

0.010 x 12 = i

i = 0.12 = 12%