You are offered an investment that pays 8% APR compounded continuously.The effective annual rate for this investment is closest to:
A)7.70%.
B)8.00%.
C)8.33%.
D)8.50%.

Question

Quizplus · Accepted Answer

The formula for calculating the effective annual rate (EAR) from a continuously compounded interest rate is:

EAR = e^(r) - 1 where r is the annual interest rate

In this case, r = 8%, so:

EAR = e^(0.08) - 1 = 0.0833 or 8.33%

Therefore, the closest effective annual rate for this investment is 8.33%.

You Are Offered an Investment That Pays 8% APR Compounded