Problema Solution
How much more money is earned in 10 years if $5,000 is invested at 6% compounded continuously rather than compounded annually?
Answer provided by our tutors
P = $5,000 the principal
t = 10 years the time
r = 0.06 or 6% the annual interest rate
A = the future value
Compounded continuously - the future value formula is:
A=Pe^(rt)
A = 5000*e^(0.06*10)
........
........
A = $9,110.59
Compounded annually - the future value formula is:
A = P(1 + r)^t
A = 5000(1 + 0.06)^10
........
........
A = $8,954.24
$9,110.59 - $$8,954.24 = $156.35
$156.35 is earned.