Question

the maximum rate which a bank can earn given a stated annual percentage rate is the rate which is computed using: a) continuous compounding ; b)daily compounding; c)simple interest; d) annual compounding; e)monthly compounding

Answer 1

The more number of times an amount is compounded in a given year, the more interest it will earn on the principal. Hence, simple interest is out of question. The maximum an amount can be compounded is when we compound it every second. From daily, montly, annual and continuous compounding, continuous compounding sounds as a better choice. Therefore, the correct option is-

Continuous compounding

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