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Question

If each account has an initial deposit of $45,000, what will be the interest difference between quarterly compounding and continuos compounding after 8 years if each has an interest rate of 7.02%?

Answer 1

continuous compounding: A(t) = Pe^rt

 

quarterly compounding: A(t) = P(1+r/4)^rt

 

Calculate A(8) using r = 0.0702, t = 8, P = 45,000 for each scenario.

 

Then subtract the two values to get the interest difference. (The two values you compute are Accumulated $ amounts, but since they both have the same Principal, this difference will be the difference in Interest)