Effective interest rate problem

Tayeeba

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Need help with number VII. I dont know what it means by sub compounding rate and how the final answer is 12.
 
Agreed. Image is much too small. Please just type out the text. Thank you! ;)
 
Can't read your attachment....
Can you post the question yourself?

Question: How many compounding periods are needed to have an effective interest rate
of 25% if the interest rate per subcompounding period is 1.88%?
I have two questions:
1.effective interest rate i = (1+r/m)^(m)(n)
here m is number of compounding periods and n is number of years right?
please correct me if im wrong.
but what is r? And what is r/m as a whole term?
2. What does sub compounding mean?
 
Question: How many compounding periods are needed to have an effective interest rate of 25% if the interest rate per subcompounding period is 1.88%?

2. What does sub compounding mean?
In this context, they mean "the period over which each of the compoundings is done". For instance, were interest compounded daily, the sub-compounding period would be "one day", with n = 365.

I suspect they're using this term in order to clarify that they are not talking about the "period" for the interest rate, which is standardly "annual". ;)
 
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