The stated rate of interest is 8 percent.Which form of compounding will produce the highest effective rate of interest?

Question

Quizplus · Accepted Answer

Continuous compounding is the highest form of compounding that produces the highest effective rate of interest. This is because it involves compounding interest continuously over time, which means that the interest earned in each infinitesimal interval also earns interest in the next interval, resulting in a higher effective rate of interest compared to other forms of compounding. The formula for calculating the effective rate of interest under continuous compounding is A = Pert, where A is the amount, P is the principal, r is the interest rate, and t is the time period in years.

The Stated Rate of Interest Is 8 Percent