if your bank account earns interest that is compounded more than one time per yr, effective annual yield of the account, E,is the interest trate that would give the same amount of interest earnings if the interets were compounded once per yr. if P dollars are invested, the value of the investment is A=P(1+E).
a) Find the formula for the effevtive annual yield for an account with interest compounded n times per yr.
b)Find a formula for the effective annual yield for an account with interest compounded continuously.
c)What is the effective annual yield of an account bearing 5.6% interest compounded monthly? What is the effective annual yield of an account with the same rate of interest compounded continuously?
Math problem: something to do with banking?
a: Say your annual rate = i.
i/n = interest credited per period
After 2 periods your initial investment (A) looks like:
A*(1+i/n)*(1+i/n)
Thus making the formula for n periods =
A*(1+i/n)^n
b: Now we look at what happens as n goes to infinity.
lim n-%26gt; infinity of (1+i/n)^n
is a basic definition of e^x where in this case it is e^i
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