00:01
So in this problem, we're told that an accountant at the crystal credit union is proposing changing the method of compounding interest for the premium savings account to yearly compounding.
00:10
So it says that if the current rate is 8%, which is compounded quarterly, we want to know what rate should the treasurer suggest to maintain the same effective rate of interest, which means we need to find the effective rate of interest.
00:23
So in this particular case, what we would do is use our effective rate of interest formula, which is r equals, or r -eff, i should say, equals the quantity of 1 plus r, the regular rate, divided by n, the number of times is compounded, all raised to the n power, and then we subtract 1.
00:46
So let's substitute in what we know.
00:48
Well, so we're looking for the effective rate of interest.
00:50
So this would equal to 1 plus, while our rate is 8%.
00:54
But remember, we have to turn it into a decimal.
00:56
So we move the decimal two points to the left, so we'd have 0 .08...