Question

A. 13% with Continuous compounding is equivalent to ______________________ with Semiannual compounding?

B. 11% with Continuous compounding is equivalent to ______________________ with Quarterly compounding?

Answer 1

A)

The equivalent rate with semi-annual compounding is found using the following equation

Solving for r in the above equation we get

1.138828383 = (1 + 0.5r ) ²

(1+0.5r) =  

1 + 0.5 r = 1.067159024

r = 13.43 %

13% with Continuous compounding is equivalent to 13.43 % with Semiannual compounding.

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B)

1.11627807 = (1 + 0.25 r)⁴

1 + 0.25 r =

1 + 0.25 r = 1.027881615

r = 11.15 %

11% with Continuous compounding is equivalent to 11.15 % with Quarterly compounding.