a bank pays 12% nominal interest compounded monthly. What is the effective rate?

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Will -The more often a bank pays you interest, the higher the "effective" rate will be.With a "nominal" rate of 12%, if the bank pays you only "once" a year, then the effective rate always equals the nominal rate or 12% in your problem.  However, in your problem, the bank will pay you interest "12 times" per year, so you should expect an effective rate greater than 12%.So, how do we calculate the higher effective rate if you are paid interest 12 times per year?  It is a pretty simple formula:Effective Rate = (1 + r/t) ^t - 1where, r = the annual nominal rate and n = the number of times per year the bank pays you interest.  In your problem, r = 0.12 (always use decimals, not percents in this formula) and t = 12.Just plug in these values for r and t into the above formula and solve for the effective rate.Hope this helps