Question 21.63

33. Suppose that you have an investment that earns 0% in the first year, but 10% in the second year.

  1. What rate of interest, compounded annually, would yield the same return after two years?
  2. What rate of interest, compounded continuously, would yield the same return after two years?

33.

(a) We seek for which , so .

(b) We solve , getting ln .