Question

A certain bank offers an interest rate 6% per annum Compounded annually. A competing bank compounds Its Interest continuously . Whał rate should the competing bank offer so that the effective rates of interest for the two bank are equal?​

Answer 1

5.827%

Explanation:

Interest compounded annually, and interest compounded continuously will have the same effective rate if the annual multipliers are the same. For the interest multipliers to be the same, you must have ...

1 +6% = e^r

ln(1.06) = r ≈ 0.0582689 ≈ 5.827%

The competing bank should offer a rate of 5.827% compounded continuously.