Which of the following produces the highest effective annual rate?
A) 6% compounded annually
B) 6% compounded monthly
C) 6% compounded daily
D) 6% compounded continuously.

Question

Quizplus · Accepted Answer

Compounding continuously produces the highest effective annual rate due to the mathematical limit of the compounding process as the number of compounding periods goes to infinity, represented by the formula $A = Pe^{rt}$, where $e$ is the base of the natural logarithm.

Which of the Following Produces the Highest Effective Annual Rate