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Chapter 5: Q. 25 (page 324)

Find the effective rate of interest. For 5% compounded continuously

Short Answer

Expert verified

The answer is 5.127%

Step by step solution

01

Step1. Given information

The rate of interest, r=5%=5100=0.05

The investment compounded continuously.

02

Step 2. Use Effective rate of interest 

The effective rate of interest rcof an investment earning an annual interest rate rcontinuous compounding is given by,rc=er-1

03

Step 3. Calculation

Substitute the values in the Effective rate of interest formula,

rc=e0.05-1rc=2.71820.05-1rc=1.05127-1rc=0.05127rc=5.127%

The Effective rate of interest is 5.127%

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