Compunded Intrest

Question

Find the cost of each item in 11 years, assuming an inflation rate of 12% (compounded continuously). (Round your answers to the nearest cent.)

(a) phone bill, $37

$ 

(b) pair of shoes, $65

$ 

(c) new suit, $368

$ 

(d) monthly rent, $550

$ 

Answer 1

The formula for continuous compound interest is:

A = P•e^rt

where: A = Final amount

P=Principal

r=rate

t=time in years

e = Euler's number, is a mathematical constant approximately equal to 2.71828

(a) Phone bill. P=37

r= 12% = 0.12

t= 11

A= 37•e^0.12(11) = 37•e^1.32 ~ $138.51

(b) Pair of shoes, P=65

r= 12% = 0.12

t= 11

A= 65•e^0.12(11) ~ $243.32

(c) New suit, P=368

r= 12% = 0.12

t= 11

A= 368•e^0.12(11) ~ $1377.58

(d) monthly rent, P=550

r= 12% = 0.12

t= 11

A= 550•e^0.12(11) ~ $2058.88