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Interest and Limits

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Please see attachment for question.

If the annual interest rate is r, then the effective interest for a time period of length T with compounding frequency N is given by the following equation (see that attached file for the equation).

(1) Show by algebra that r(T,N) = (1 + rT/N)^N - 1.
(2) What is the limit r(T) = lim(N --> infinity(r(T,N))? You do not need to justify your answer in this part.

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Solution Summary

This solution answers questions regarding interest and limits.