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March 26, 2017

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what normal annual interst rate has an effective annual yield of 7.8% under continuous compounding?

  • calculus - ,

    We calculate the amount after t=1 year at rate r under continuous compounding, and equate it to 1.078:

    1.078=1*ert
    take natural log on both sides:
    ln(1.078)=r*1
    r=ln(1.078)
    =0.07511
    or 7.511% p.a.

  • calculus - ,

    thanks

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