SOLUTION: I am having problems with this particular word problem, I know I use the formula : A = P (1+(r/n)^nt but I am not sure how to use it in correlation to the problem, could someone

Question 192945: I am having problems with this particular word problem, I know I use the formula : A = P (1+(r/n)^nt but I am not sure how to use it in correlation to the problem, could someone help?
Problem :
If 40600 dollars is invested at an interest rate of 10 percent per year, find the value of the investment at the end of 5 years for the following compounding methods.
Annually : ?
Semi-annually : ?
Monthly : ?
Daily : ?
Continously : ?
Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!

Step 1 is to write your formula correctly. You left out a very important parenthesis mark.

A is the answer you want.

P is the amount invested, or $40,600

r is the annual interest rate, expressed as a decimal, so 0.10

t is the number of years, or 5 for this problem

and n is the number of compounding periods per year, so

For Annually: n = 1

For Semi-annually: n = 2

For Monthly: n = 12

For Daily: n = 365

Just substitute the values for the variables in the formula and get to punching buttons on your calculator.

For example, for the Monthly problem:

However, for Continuous, you have to use a different formula. That's because

for continuous compounding. As it turns out,

So, for continuous compounding:

Where e is the base of the natural logarithms. Again, substitute and punch calculator buttons.

John

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