The stated rate of interest is 10%. Which form of compounding will give the highest effective rate of interest?
A) annual compounding
B) monthly compounding
C) daily compounding
D) continuous compounding
E) It is impossible to tell without knowing the term of the loan.

Question

Quizplus · Accepted Answer

Continuous compounding will always give the highest effective rate of interest, regardless of the term of the loan. This is because the interest is being compounded constantly, instead of at set intervals like annual, monthly, or daily. Therefore, the answer is (D) continuous compounding.

The Stated Rate of Interest Is 10