Question

Given an interest rate of 1% per month, compounded continuously, determine the effective annual rate:   
ans:   0.1275

Answer 1

1% for a month is 12% per year because the rate is compounded continuously annual compounded continuously rate is just the multiple of the given interval

Now we need to find the effective annual rate

Calculating Effective Interest Rate
Effective Interest can be calculated by the following formula,

where
r=Effective Rate of Interest

δ= interest rate compounded continuously

Therefore,

The effective rate of interest is 12.74969%=0.1275.