SOLUTION: Thank you in advance for your help!!! Suppose that $2000 is invested at a rate of 6% per year compounded continuously. What is the balance after 1 year? After 2 years?

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Question 207170: Thank you in advance for your help!!! Suppose that $2000 is invested at a rate of 6% per year compounded continuously. What is the balance after 1 year? After 2 years?
Answer by solver91311(24713)   (Show Source): You can put this solution on YOUR website!


The formula for continuous compounding is

where is the balance on dollars invested for years at rate of interest (expressed as a decimal) and is the base of the natural logarithms (approx. 2.718), so for your first problem:



Get out your calculator. As a check on your work, 2000 at 6% simple interest would have a $2120 balance after a year. Continuous compounding is going to be larger, but not by a whole lot -- certainly less than $2125. For the second problem, substitute 2 in the place of the 1 in the exponent on . Your answer should be somewhere between $2247 and $2255.

John


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