Bus Econ 3.3.61 Question Help Suppose that $100 is invested at 7%, compounded co

Question

Bus Econ 3.3.61 Question Help Suppose that $100 is invested at 7%, compounded continuously, for 1 yr. The ending balance will be $107.25 This would also be the ending balance if $100 were invested at 7.25% compounded once ? year (simple interest). The rate of 7.25% is called the effective annual yield in general, if Po is invested at interest rate k, compounded continuously, then the effective annual yield is that number i satisfying P0(1 + i): Poek Then 1 +?ek, or, the effective annual yield, i = ek-1 An amount is invested at 6.6% per year compounded continuously. What is the effective annual yield? The effective annual yield is approximately ?% Round to two decimal places as needed.)

Explanation / Answer

Given,

Effective annual yeild = ek-1

here, k is the interest rate compounded continuously.

now, given, k=6.6% so effective annual yeild= e6.6%-1 =e6.6/100-1 = e0.066-1 =1.068-1=0.068

so, i=0.068*100% = 6.8% Answer.

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