Question

Find the effective interest rate for a 17% nominal interest rate, with interest compounded continuously.

Round the answer to one decimal place.

Answer 1

Suppose you invested $100 at 17% compounded continuously. How much would you have in the account after 1 year?

Answer 2

101.71

Answer 3

The formula for continuous compounding is \(\large A = Pe^{rt}\).

Answer 4

The effective interest rate is the interest rate that would be had if it was just simple interest being applied for one year.

In this problem, $118.53 is the same amount you would get if you invested $100 at 18.5% (rounded) simple interest for one year.