assume $5000 is deposited in an account that pays 6% annual interest how much more would be in the account after 25 years if it were compounded monthly rather than quarterly

Question

assume $5000 is deposited in an account that pays 6% annual interest how much more would be in the account after 25 years if it were compounded monthly rather than quarterly

Answer 1

A = Pe^rt, where r = annual interest rate, t=years, P=investment

A =5000e^.06(25)= 5000e^1.5

= $22,408.45 after 25 years compounded continuously at 6%

A= P(1+r/n)^nt where n= number of compounding periods per year = 12 for monthly compounding

A=5000(1+.06/12)^12(25) = 5000(1.005)^300

= $22,324.85 after 25 years compounded monthly at 6%

22408.45-22324.85 = $83.60 more with continuously compounded compared to monthly compounded