An investment at 10 percent compounded continuously has an equivalent annual rate of:
A)10.250 percent.
B)10.517 percent.
C)10.381 percent.
D)none of the options.

Question

Quizplus · Accepted Answer

The formula for finding the equivalent annual rate for continuous compounding is:
EAR = e^r - 1
Where r is the annual interest rate. 
So, to find the equivalent annual rate for 10% continuous compounding, we plug in 0.1 for r:
EAR = e^0.1 - 1 
EAR = 0.10517 or 10.517%
Therefore, the correct answer is B.

An Investment at 10 Percent Compounded Continuously Has an Equivalent