A bank pays interest at the rate r, compounded M times yearly. The effective interest
Chapter 5, Problem 63(choose chapter or problem)
A bank pays interest at the rate r, compounded M times yearly. The effective interest rate re is the rate at which interest, if compounded annually, would have to be paid to produce the same yearly return. (a) Find re if r = 9% compounded monthly. (b) Show that re = (1 + r/M)M 1 and that re = er 1 if interest is compounded continuously. (c) Find re if r = 11% compounded continuously. (d) Find the rate r that, compounded weekly, would yield an effective rate of 20%.
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