Discrete compounding rate

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Posts: 11
Joined: Fri Mar 15, 2013 3:12 pm

Discrete compounding rate

Postby shah.vishal » Thu Mar 21, 2013 10:48 pm

How to find discrete compounding rate from continious compounding rate? if continious compounding rate is 10.75% , semi annually.
e 0.1075 = (1=r/2)2
please solve this step wise

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Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Discrete compounding rate

Postby content.pristine » Mon Mar 25, 2013 12:40 pm

I like to solve these type of questions into 2 steps.
1. Get the annual rate (from continuous compounding in this question)
2. Get the rate asked in the question (semi-annual rate)
Step 1: e^0.1075=1.11349 => interest rate = 11.349%
Step 2: (1.1149)=(1+r/2)^2 where r is the semi-annual compounded interest rate
sqrt(1.1149)= 1.05522 = 1+r/2
2*.05522=r = 11.0442%

Hope this helps! :-)

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