Question 164222: find the effective interest rate if the norminal interest rate is 10% compounded continousely for 2year Answer by aka042(26) (Show Source):
You can put this solution on YOUR website! Compounding interest follows this formula where e is the mathematical constant approximately equal to 2.718..., t is the number of periods (years) and r is the nominal interest rate . Why this is requires some knowledge of calculus. However, calculating interest rates using the formula is simple!
For your problem, we simply plug in the values: . Therefore, your effective interest rate is about 22.14%.
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