What is the annual percentage yield of the CDs in this case From the above

# What is the annual percentage yield of the cds in

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nominal interest rate compounded continuously. What is the annual percentage yield of the CDs in this case? From the above problem: R = 1.99% or 0.0199 We need to find ‘i’ Since the interest is compounded continuously, we need to use the formula: i = e r -1 i = e 0.0199 1 = 0.020099 = 2.00% Therefore, annual percentage yield of this CD is 2.00% IE 492 Engineering Economics Karnik 4

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DISCRETE PAYMENTS The formulas and approach changes depending on how the payments are made when the interest in compounded ‘continuously’ For example: When the interest is compounded continuously but, the payments are made ‘annually’, we can still use formulas from previous chapters and adjust for continuous compounding. The interest factors in this case become as shown in section 5.2 of the book. - For example: Single payment compound amount factor becomes: - F/P: e rn where ‘r’ is the interest rate and ‘n’ is the number of years. - Similarly, P/F becomes e -rn and so on.. IE 492 Engineering Economics Karnik 5
DISCRETE PAYMENTS - EXAMPLE Let’s work through an example 5.2 in the book.

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