Question

Find the corresponding effective interest rate for 3% per year compounded continuously?

Answer 1

3.045%.

Explanation:

We are asked to find the corresponding effective interest rate for 3% per year compounded continuously.

We will use effective interest formula to solve our given problem.

`r=e^i-1`, where,

r = Effective interest rate,

e = Mathematical constant,

r = Interest rate in decimal form.

Let us convert given interest rate in decimal form.

`3\%=(3)/(100)=0.03`

Substitute values:

`r=e^(0.03)-1`

`r=1.030454533953517-1`

`r=0.030454533953517`

`r\approx 0.03045`

Convert into percentage:

`0.03045* 100\%=3.045\%`

Therefore, the corresponding interest rate would be 3.045%.