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To determine the effective annual interest rate in question b, we start by analyzing the given dataTo determine the effective annual interest rate in question b, we start by analyzing the given 

- **Monthly interest rate (i)**: 1%
- Since it’s compounded monthly, we’ll calculate the effective annual interest rate using the formula for compounding interest:

\[
\text{Effective annual interest rate} = (1 + i)^{12} - 1
\]

### Solution

1. **Insert the monthly rate**:
   \[
   i = 0.01 \quad (\text{or } 1\%)
   \]

2. **Calculate**:
   \[
   \text{Effective annual interest rate} = (1 + 0.01)^{12} - 1
   \]

3. **Evaluate**:
   Calculating \( (1.01)^{12} \approx 1.126825 \).

   So,
   \[
   \text{Effective annual interest rate} \approx 1.126825 - 1 = 0.126825 \quad \text{or} \quad 12.68\%
   \]

Therefore, the effective annual interest rate is approximately **12.68%**.

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Would you like more details on the calculation process, or do you have any other questions?

Here are 5 related questions to deepen your understanding:
1. How does compounding frequency affect the effective interest rate?
2. What would be the effective interest rate if compounded quarterly instead?
3. Can we calculate the total amount Ole would pay over the 3 years?
4. How would a higher monthly interest rate affect the monthly payment?
5. How do effective interest rates compare to nominal rates?

**Tip:** When converting a nominal rate to an effective rate, remember to account for the compounding frequency to get an accurate annual rate.

Learn how to calculate the effective annual interest rate for a loan with a 1% monthly interest rate over a 3-year term. This guide covers key financial concepts like compounding interest and provides a step-by-step solution for determining the annual rate based on monthly compounding.

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