A bank that offers depositors a 10% p.a.rate compounded semi- annually is using continuous compounding to calculate depositors' interest payments.

Question

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If a bank is using continuous compounding to calculate interest payments, the interest rate would be expressed as a continuously compounded rate or e^r - 1, where e is the mathematical constant approximately equal to 2.71828 and r is the annual interest rate. A 10% p.a. rate compounded semi-annually is not equivalent to a continuously compounded rate.

A Bank That Offers Depositors a 10% P