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10 September, 07:56

Estimate the effective annual rate (ear) for a continuously compounded annual nominal rate of 8.00%.

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  1. 10 September, 08:21
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    The effective annual rate is 8.33%.

    we can calculate the effective nominal annual rate by using this formula;

    r = e∧i - 1

    e is the constant = 2.718

    i = compounded annual nominal rate = 8% = 0.08

    r = 2.718∧ (0.08) - 1

    = 1.0833 - 1

    = 0.0833 = 0.0833 x 100 = 8.33%
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