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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.