The effective rate for a continuous compounding rate of 17,5% is

Question

1) 16,13% 2) 17,5% 3) 19,12% 4) 19,13% 5) 21,076%

Answer 1

The formula for continuous compound interest is A=Pe^rt. The expression A/P-1 is the effective rate of interest for the compounding rate r, and this is equal to e^rt-1.

When r=0.175 and t=1 e^rt-1=e^0.175-1=1.191246-1=0.191246, so the effective rate of interest is 19.12 (answer 3).