In this example, you deposit $1,000 in a
CD at your local bank, it earns 6% annual interest compounded monthly. What is the balance at
the end of 12 months? (hint: don’t forget to find the monthly interest rate)
My answer is $1063.402318714$, the right answer is $1061.68$. Which answer is right?
IMO the question is incorrectly stated. An annual interest rate of $6\%$ yields $6\%$ after twelve months !
If you consider that it was obtained by compounding monthly, the monthly interest rate must have been $100(\sqrt[12]{1.06}-1)\approx0.487\%$, which of course restores $6\%$ in twelve months by $100(1.0049^{12}-1)$.
A better phrased statement would be about a monthly interest rate that woulds yield $6\%$ yearly if not compounded, hence $0.5\%$ monthly. Then compounded on twelve months, $100(1.005^12-1)\approx6.17\%$.