Suppose $5000 is put into an account that pays 3.5% compounded continuously. How much will be in the account after 12 years?


2 Answers

Rooster Cogburn Profile
Rooster Cogburn , Rooster Cogburn, answered

$ 42.00 !


Forty two bucks !

Kioyre S. Profile
Kioyre S. answered

Compound interest! I did this last year (:

Use this formula: A=Pe^rt (looks ugly here, I know). It's the continuous compound interest formula.

Know that A is your final amount of money after a certain amount of time; P is amount of money you start off with; e has a set numeric value (2.71...) it's on your calculator anyway!; r is the interest rate in decimal form; and finally, t is the time in years! The question usually should give you enough info to solve for at least one of these values.

In this example, you start with $5000, right? It compounds continuously at 3.5% for 12 years. That's what you know

So, you can insert your values in the formula: A=Pe^rt

A = 5000e^(0.035)x(12)

Put that in a calculator, and you should be fine. Remember: It's compounded interest, so the value should actually be increasing.

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