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Chapter 5: Q. 26 (page 324)

Find the effective rate of interest. For 6% compounded continuously

Short Answer

Expert verified

The answer is 6.183%

Step by step solution

01

Step1. Given information

The rate of interest, r=6%=6100=0.06

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 r compounding continuously given by,rc=er-1

03

Step 3. Calculation

Substitute the values in the Effective rate of interest formula,

rc=e0.06-1rc=2.71820.06-1rc=1.06183-1rc=0.06183rc=6.183%

The effective rate of interest is 6.183%

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