If $125 is invested at an interest rate of 18% per year and is compounded continuously, how much will the investment be worth in 2 years? Use the continuous compound interest formula A = Pert.
Mathematics · High School · Mon Jan 18 2021
Answered on
Given:
Principal Amount ( P ) = $125
Interes Rate ( r ) = 18% or 0.18 ( divide by 100)
Term ( t ) = 2
Compounded continuously ( n ) = 1
Formula for Compound Interest:
A = P ( 1 + r/n)^nt
A = Future value
A = Pert is the formula used for simple interest.
Solution:
Substitute the given values of P, r, n and t to the formula for the compound interest.
A = $125 ( 1 + 0.18/1)^(2)(1)
A = $125 (1.18)^(2)
A = $125 (1.3924)
A = 174.05
Final answer:
A = 174.05