What is the equivalent continuously compounded rate of return?

A bank advertises its certificates of deposits as yielding a 5.2% annual effective rate.

What is the equivalent continuously compounded rate of return?
A . 4.82%
B . 5%
C . 5.07%
D . 5.20%

View Answer

Answer: C

Explanation:

The equivalent continuously compounded rate in this case can be calculated as ln(1+5.2%) = 5.07%. The other answers are incorrect.

Refer to the tutorial on interest rates for more details on how continuously compounded rates work.