College Algebra (10th Edition)

Published by Pearson
ISBN 10: 0321979478
ISBN 13: 978-0-32197-947-6

Chapter 6 - Section 6.7 - Financial Models - 6.7 Assess Your Understanding - Page 475: 25


$ 5.127\%$

Work Step by Step

Apply the Effective Rate of Interest Theorem: The effective rate of interest $r_{e}$ of an investment earning an annual interest rate $r$ is given by Compounding $n$ times per year: $\displaystyle \quad r_{e}=\left(1+\frac{r}{n}\right)^{n}-1$ Continuous compounding: $\quad \quad r_{e}=e^{r}-1$ --- Continuous compounding$, \quad r=0.05,$ $r_{e}=e^{0.05}-1\approx 0.051271$ $ r_{e}\approx 5.127\%$
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