If $1100 is deposited in a savings account that pays interest at a rate of 10 1/4% per year..?

Question

compounded continuously, find the balance after 7 years.

Please round to the nearest hundredth.

Answer 1

It sounds like there is a formula that you are supposed to know. Go back through your book to find it. I am thrown by "compounded continuously"; I don't know what that would mean in reality.

If it compounded daily (365.25 days per year), the formula would be 1100*(1+.1025/365.25)^(7*365.25) = $2,254.

I do know that as a rule of thumb, growth at 10% will double in 7 years; growth at 7% will double in 10 years.

Answer 2

The formula that you want is:

FV = 1100* e^(0.1025*7) = 2254.23

This is obviously a problem for a class. In the real world, savings accounts compound daily using the actual number of days for compounding -- but using a rate that is equal to the annual rate divided by 360. Spread out over the next seven years, this value would be:

FV = 1100*(1+10.25%/360)^2557 = 2,277.87 -- which actually pays more than continuous compounding

Answer 3

Are you serious, 10 1/4 percent, WHO IS OFFERING THAT!

The most i see anywhere is like 5.5% THer is no way that could be fdic insured,

I'd proceed with catution on that one.

I don't think a bank has offered that since the early 80"s

Answer 4

First find the account surely.

Answer 5

1,100.00 * (1.1025 ^ 7) = 2,177.925

Nearest hundredth

$2,177.93

Answer 6

stick with it, it is a good return.