Asked by Margaret Everett on Jul 02, 2024

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What is the effective annual rate of 14.9% compounded continuously?

A) 15.96%
B) 16.01%
C) 16.05%
D) 16.07%
E) 16.17%

Compounded Continuously

The process whereby interest is calculated on an initial principal and subsequently on the accumulated interest of previous periods, assuming the compounding occurs infinitely within a given time.

Effective Annual Rate

The actual interest rate an investment, loan, or savings account will yield after accounting for compounding.

Rate

The percentage or proportion of a specific quantity or value, often used in contexts like interest rates, return rates, or growth rates.

  • Acquire knowledge on the Effective Annual Rate (EAR) concept and its calculation process.
  • Employ comprehension of continuously compounded interest in analyzing investment development.
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Sareena WaskowiakJul 02, 2024
Final Answer :
D
Explanation :
The effective annual rate (EAR) for an interest rate compounded continuously is calculated using the formula EAR = e^r - 1, where r is the nominal annual interest rate (expressed as a decimal). For a rate of 14.9% or 0.149, the calculation is e^0.149 - 1 ≈ 0.1607 or 16.07%.