Take the current amount you have in your checking or savings account. Suppose you have a choice of keeping your money for five years in a savings account with a 2% interest rate, or in a five year certificate of deposit with and interest rate of 4.5%. Calculate how much interest you would earn with each option over five years time with continuous compounding.
A = Ce^RT My total money in the bank is 2100 dollars in round figures. Since the formula for the continuous compounding is A=Ce^RT where C is the initial deposit or capital, T for time, R is the rate of interest and A will be the final amount.
Capital = 2100, Interest Rate ( R) = 2% Time (T) = 5 years, e = 2.7182818284
When money kept for five years in a savings account with a 2% interest rate:
By using the values into formula:= 2100 e ^(0.02*5) = 2318.57
Interest earned = 2318.57 – 2100 = 218.57 dollars
Five year certificate of deposit with interest rate of 4.5%.So A = Ce^RT 2100e^4.5*5=2680.19 - 2100=$516.98
2007-08-31
01:22:56
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2 answers
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asked by
Anonymous