An investment at 10% nominal rate compounded continuously is equal to an equivalent annual rate of:
A) 10.250%
B) 10.517%
C) 10.381%
D) None of the above

Question

Quizplus · Accepted Answer

The formula to convert a nominal rate compounded continuously to an equivalent annual rate is:

EAR = e^(nominal rate) - 1

So, in this case:

EAR = e^(0.10) - 1 = 0.10517 or 10.517%

Therefore, the best choice is B.

An Investment at 10% Nominal Rate Compounded Continuously Is Equal