If a bank compounds continuously, then the formula used is A = Pe rt where e

Question

If a bank compounds continuously, then the formula used is A = Pe rt where e is a constant and equals approximately 2.7183. Calculate A with continuous compounding. Round your answer to the nearest cent.

The problem is $3,000 for 6 years at 7%. Would you use 365 for compounding continuously? Please show each step as I'm really have a problem with this one. Help!!!

Answer 1

The t in the formula A=Pe^rt represents the time to accumulate, in years. So in this case, t=6. Plugging in to the formula gives us A=Pe^rt = 3000 e^{(0.07 * 6)} = 4,565.88.

Answer 2

A = 3000e^(.07*6) = $4,565.88

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Attn: In the continuously compounding formula A = Pe ^(rt), t is the number of years. So, don't change it to days.