Question
In: Finance
An interest rate is 6.75% per annum with continuous compounding. What is the equivalent rate with...
An interest rate is 6.75% per annum with continuous compounding. What is the equivalent rate with semiannual compounding?
Solutions
Expert Solution
Given that,
interest rate r = 6.75% compounded continuously
1st calculating effective annual rate
EAR = e^(r) - 1 = e^(0.0675) - 1 = 6.98%
So, semiannual compounded rate APR = 2*((1+EAR)^(1/2) - 1) = 2*(1.0698^0.5 - 1) = 6.87%
So, equivalent rate with semiannual compounding is 6.87%
jeff jeffy answered 2 years agoRelated Solutions
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