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CT8 S2014 Question 4'
- Thread starter Jia Syuen
- Start date
Hi Jia
It's because the exam question involves an effective interest rate, i, rather than a force of interest (= continuously compounded rate), r.
Going back to CT1/CM1 days, the force of interest is defined as:
r = ln(1 + i)
So that:
exp(r) = (1 + i)
exp(rt) = (1 + i)^t
Hence why we have exp(2r) = 1.04^2 in this question.
Anna
It's because the exam question involves an effective interest rate, i, rather than a force of interest (= continuously compounded rate), r.
Going back to CT1/CM1 days, the force of interest is defined as:
r = ln(1 + i)
So that:
exp(r) = (1 + i)
exp(rt) = (1 + i)^t
Hence why we have exp(2r) = 1.04^2 in this question.
Anna