Find the effective rate of return equivalent to declared rate of 12% compounded continuously.
[Use $(1.06)^2=1.1236, (1.03)^4=1.1255$ and $(1.01)^2= 1.1268, e^{0.12}= 1.1275$]
Answer & explanation
Correct answer: option 4
The correct answer is option (4) : 12.75%
Given r = 12% p.a
$i=\frac{12}{100}=0.12$
When compounded continuously, then effective rate (per rupee) = $e^i -1$
$= e^{-0.12}-1$
$=1.1275-1$
$= 0.1275$
Hence, effective rate $= 0.1275×100$%
$= 12.75$%