You deposit $750 in an account that pays 3.2% annual interest compounded continuously. Find the balance after 8 years.

Question

a.  6195

b. 968

c. 774.39

d. 96.80

Answer 1

The answer to this question can be solved by using this equation:

P=P₀*(1+r)ⁿ 

Sine it's compounded continuously then we have to compute the interest rate on a daily basis, which can be found by dividing the annual rate by 365 if we assume that a year is 365 days:

r=0.032/365=8.767.10^-5

then after 8 years the balance would be:

P=750*(1+8.767.10^-5)^8*365

P=750*(1+8.767.10^-5)²⁹²⁰

P=968.8

Thus the right answer is b.

Answer 2

A= Pe^yr

 

A = 750e^8(.032) = 968 dollars.

 

 

Answer 3

Continuously compounded interest always follows the equation:

 

A = P*e^(r*t)

 

r = 0.032 

t = 8 years

P = 750 $

 

Plugging everything in yields:

 

A = $968.81

 

B is the answer