document.write( "Question 84045: Can anyone help me with this problem? I'm in an class and running on a dealine. I'm not very capable when it comes to this stuff so any help I can get will be appreciated. Thanks.\r
\n" ); document.write( "\n" ); document.write( "The formula for calculating the amount of money returned for deposit money into a bank account or CD (Certificate of Deposit) is given by the following:
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\n" ); document.write( "A is the amount of returned
\n" ); document.write( "P is the principal amount deposited
\n" ); document.write( "r is the annual interest rate (expressed as a decimal)
\n" ); document.write( "n is the compound period
\n" ); document.write( "t is the number of years\r
\n" ); document.write( "\n" ); document.write( "Carry all calculations to 6 decimals on all assignments then round the answer to the
\n" ); document.write( "nearest cent.\r
\n" ); document.write( "\n" ); document.write( "Suppose you deposit $20,000 for 3 years at a rate of 8%.
\n" ); document.write( "a) Calculate the return (A) if the bank compounds annually (n = 1).
\n" ); document.write( "Answer:
\n" ); document.write( "Show work in this space. Use ^ to indicate the power. \r
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\n" ); document.write( "\n" ); document.write( "b) Calculate the return (A) if the bank compounds quarterly (n = 4). Round your answer to the hundredth's place.
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\n" ); document.write( "\n" ); document.write( "c) Calculate the return (A) if the bank compounds monthly (n = 12). Round your answer to the hundredth's place.
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\n" ); document.write( "\n" ); document.write( "d) Calculate the return (A) if the bank compounds daily (n = 365). Round your answer to the hundredth's place.
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\n" ); document.write( "\n" ); document.write( "e) What observation can you make about the size of increase in your return as your compounding increases more frequently?
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\n" ); document.write( "\n" ); document.write( "f) If a bank compounds continuous, then the formula becomes simpler, that is where e is a constant and equals approximately 2.7183. Calculate A with continuous compounding. Round your answer to the hundredth's place.
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\n" ); document.write( "\n" ); document.write( "g) Now suppose, instead of knowing t, we know that the bank returned to us $25,000 with the bank compounding continuously. Using logarithms, find how long we left the money in the bank (find t). Round your answer to the hundredth's place.
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\n" ); document.write( "\n" ); document.write( "h) A commonly asked question is, “How long will it take to double my money?” At 8% interest rate and continuous compounding, what is the answer? Round your answer to the hundredth's place.
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Algebra.Com's Answer #60492 by jim_thompson5910(35256)\"\" \"About 
You can put this solution on YOUR website!
\"A=p%281%2Br%2Fn%29%5E%28n%2At%29\" Start with the given equation\r
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\n" ); document.write( "\n" ); document.write( "\"A=20000%281%2B0.08%2Fn%29%5E%28n%2A3%29\" Plug in p=20000, r=0.08\r
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\n" ); document.write( "\n" ); document.write( "a) \r
\n" ); document.write( "\n" ); document.write( "Lets calculate the return if the bank compounds annually\r
\n" ); document.write( "\n" ); document.write( "Let n=1 and plug it into \"A=20000%281%2B0.08%2Fn%29%5E%28n%2A3%29\"\r
\n" ); document.write( "\n" ); document.write( "\"A=20000%281%2B0.08%2F1%29%5E%281%2A3%29\" Start with the given expression
\n" ); document.write( "\"A=20000%281%2B0.08%29%5E%281%2A3%29\" Divide 0.08 by 1 to get 0.08
\n" ); document.write( "\"A=20000%281%2B0.08%29%5E%283%29\" Multiply the exponents 1 and 3 to get 3
\n" ); document.write( "\"A=20000%281.08%29%5E%283%29\" Add 1 and 0.08 to get 1.08
\n" ); document.write( "\"A=20000%281.259712%29\" Raise 1.08 to 3 to get 1.259712
\n" ); document.write( "\"A=25194.24\" Multiply 20000 and 1.259712 to get 25194.24\r
\n" ); document.write( "\n" ); document.write( "So our return is $25194.24
\n" ); document.write( "b) \r
\n" ); document.write( "\n" ); document.write( "Lets calculate the return if the bank compounds quarterly\r
\n" ); document.write( "\n" ); document.write( "Let n=4 and plug it into \"A=20000%281%2B0.08%2Fn%29%5E%28n%2A3%29\"\r
\n" ); document.write( "\n" ); document.write( "\"A=20000%281%2B0.08%2F4%29%5E%284%2A3%29\" Start with the given expression
\n" ); document.write( "\"A=20000%281%2B0.02%29%5E%284%2A3%29\" Divide 0.08 by 4 to get 0.02
\n" ); document.write( "\"A=20000%281%2B0.02%29%5E%2812%29\" Multiply the exponents 4 and 3 to get 12
\n" ); document.write( "\"A=20000%281.02%29%5E%2812%29\" Add 1 and 0.02 to get 1.02
\n" ); document.write( "\"A=20000%281.26824179456255%29\" Raise 1.02 to 12 to get 1.26824179456255
\n" ); document.write( "\"A=25364.8358912509\" Multiply 20000 and 1.26824179456255 to get 25364.8358912509\r
\n" ); document.write( "\n" ); document.write( "So our return is $25364.84
\n" ); document.write( "c) \r
\n" ); document.write( "\n" ); document.write( "Lets calculate the return if the bank compounds monthly\r
\n" ); document.write( "\n" ); document.write( "Let n=12 and plug it into \"A=20000%281%2B0.08%2Fn%29%5E%28n%2A3%29\"\r
\n" ); document.write( "\n" ); document.write( "\"A=20000%281%2B0.08%2F12%29%5E%2812%2A3%29\" Start with the given expression
\n" ); document.write( "\"A=20000%281%2B0.00666666666666667%29%5E%2812%2A3%29\" Divide 0.08 by 12 to get 0.00666666666666667
\n" ); document.write( "\"A=20000%281%2B0.00666666666666667%29%5E%2836%29\" Multiply the exponents 12 and 3 to get 36
\n" ); document.write( "\"A=20000%281.00666666666667%29%5E%2836%29\" Add 1 and 0.00666666666666667 to get 1.00666666666667
\n" ); document.write( "\"A=20000%281.27023705162065%29\" Raise 1.00666666666667 to 36 to get 1.27023705162065
\n" ); document.write( "\"A=25404.741032413\" Multiply 20000 and 1.27023705162065 to get 25404.741032413\r
\n" ); document.write( "\n" ); document.write( "So our return is $25404.74
\n" ); document.write( "d) \r
\n" ); document.write( "\n" ); document.write( "Lets calculate the return if the bank compounds daily\r
\n" ); document.write( "\n" ); document.write( "Let n=365 and plug it into \"A=20000%281%2B0.08%2Fn%29%5E%28n%2A3%29\"\r
\n" ); document.write( "\n" ); document.write( "\"A=20000%281%2B0.08%2F365%29%5E%28365%2A3%29\" Start with the given expression
\n" ); document.write( "\"A=20000%281%2B0.000219178082191781%29%5E%28365%2A3%29\" Divide 0.08 by 365 to get 0.000219178082191781
\n" ); document.write( "\"A=20000%281%2B0.000219178082191781%29%5E%281095%29\" Multiply the exponents 365 and 3 to get 1095
\n" ); document.write( "\"A=20000%281.00021917808219%29%5E%281095%29\" Add 1 and 0.000219178082191781 to get 1.00021917808219
\n" ); document.write( "\"A=20000%281.27121572005174%29\" Raise 1.00021917808219 to 1095 to get 1.27121572005174
\n" ); document.write( "\"A=25424.3144010349\" Multiply 20000 and 1.27121572005174 to get 25424.3144010349\r
\n" ); document.write( "\n" ); document.write( "So our return is $25424.31\r
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\n" ); document.write( "\n" ); document.write( "e) What observation can you make about the size of the increase in your return as your compounding increases more frequently?\r
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\n" ); document.write( "\n" ); document.write( "As the compounding frequency increases, the return slowly approaches some finite number (which in this case appears to be about $12213.69). Think about it, banks wouldn't be too fond of shelling out an infinite amount of cash.\r
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\n" ); document.write( "\n" ); document.write( "f)Calculate A with continuous compounding\r
\n" ); document.write( "\n" ); document.write( "Using the contiuous compounding formula \"A=Pe%5E%28rt%29\" where e is the constant 2.7183 and letting r=0.1, P=10,000, and t=2 we get\r
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\n" ); document.write( "\n" ); document.write( "\"A=20000%282.7183%29%5E%280.08%2A3%29\" Start with the given equation\r
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\n" ); document.write( "\n" ); document.write( "\"A=20000%282.7183%29%5E%280.24%29\" Multiply 0.1 and 2\r
\n" ); document.write( "
\n" ); document.write( "\n" ); document.write( "\"A=20000%281.27125118988893%29\" Raise 2.7183 to 0.2\r
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\n" ); document.write( "\n" ); document.write( "\"A=25425.0237977787\" Multiply\r
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\n" ); document.write( "\n" ); document.write( "So using continuous compounding interest we get a return of $25425.02 (which is real close to what we got from a daily compounding frequency)\r
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\n" ); document.write( "\n" ); document.write( "g)Now suppose, instead of knowing t, we know that the bank returned to us $15,000 with the bank compounding continuously. Using natural logarithms, find how long we left the money in the bank (find t)\r
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\n" ); document.write( "\n" ); document.write( "\"25000=20000e%5E%280.08t%29\" \r
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\n" ); document.write( "\n" ); document.write( "\"25000%2F20000=e%5E%280.08t%29\" Divide both sides by 20,000\r
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\n" ); document.write( "\n" ); document.write( "\"1.25=e%5E%280.08t%29\" \r
\n" ); document.write( "\n" ); document.write( "\"ln%281.25%29=0.08t\" Take the natural log of both sides. This eliminates \"e\".The natural log (pronounced \"el\" \"n\") is denoted \"ln\" on calculators.\r
\n" ); document.write( "
\n" ); document.write( "\n" ); document.write( "\"ln%281.25%29%2F0.08=t\" Divide both sides by 0.08\r
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\n" ); document.write( "\n" ); document.write( "So we get\r
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\n" ); document.write( "\n" ); document.write( "\"t=0.2231%2F0.08=2.78875\"\r
\n" ); document.write( "\n" ); document.write( "\"t=2.78875\"\r
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\n" ); document.write( "\n" ); document.write( "So it will take a little over 2 and a half years to generate $25,000\r
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\n" ); document.write( "
\n" ); document.write( "\n" ); document.write( "h) A commonly asked question is, “How long will it take to double my money?” At 8% interest rate and continuous compounding, what is the answer?\r
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\n" ); document.write( "\n" ); document.write( "Since we want to double our money, let A=2*20,000. So A=40,000. Now solve for t:\r
\n" ); document.write( "\n" ); document.write( "\"40000=20000e%5E%280.08t%29\" \r
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\n" ); document.write( "\n" ); document.write( "\"40000%2F20000=e%5E%280.08t%29\" Divide both sides by 10,000\r
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\n" ); document.write( "\n" ); document.write( "\"2=e%5E%280.08t%29\" \r
\n" ); document.write( "\n" ); document.write( "\"ln%282%29=0.08t\" Take the natural log of both sides. This eliminates \"e\".The natural log (pronounced \"el\" \"n\") is denoted \"ln\" on calculators.\r
\n" ); document.write( "
\n" ); document.write( "\n" ); document.write( "\"ln%282%29%2F0.08=t\" Divide both sides by 0.08\r
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\n" ); document.write( "\n" ); document.write( "So we get\r
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\n" ); document.write( "\n" ); document.write( "\"t=0.69314%2F0.08=8.66425\"\r
\n" ); document.write( "\n" ); document.write( "\"t=8.66425\"\r
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\n" ); document.write( "\n" ); document.write( "So it will take about 8 and a half years to double your money.
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