Answer:
(a) annual compounding = 5.063 %
(b) monthly compounding = 4.949 %
(c) continuous compounding = 4.939 %
Explanation:
given data
interest rate = 5 % = 0.05
solution
we get here equivalent rate for annual compounding
equivalent rate is express as
[tex](1+\frac{5}{2}) ^{2}[/tex] = 1 + r
r = 1.025² - 1
r = 5.063 %
and
now we get equivalent rate for monthly compounding that is
[tex](1+\frac{5}{2}) ^{2}[/tex] = [tex](1+\frac{r}{12}) ^{12}[/tex]
solve it we get
r = 4.949 %
and
now we get equivalent rate for continuous compounding
[tex](1+\frac{5}{2}) ^{2}[/tex] = [tex]e^{r}[/tex]
solve it we get
r = 4.939 %
