The effective annual yield (EAY) of a loan with a quoted rate of 8%, compounded quarterly is equivalent to the EAY of a loan with a continuously compounded quoted rate of: A. 8.16%. B. 8.08%. C. 7.92%. D. 8.24%.
For the quarterly compounded loan, EAY = (1 + (0.08 / 4))4 − 1 = 0.824. For the continuously compounded loan, we want to find the value of r that solves 1.0824 = er(1). r = ln(1.0824) = 0.0792.
