SOLUTION: You have $760,000 in your bank account. The interest rate in your account is 5%. Solve for the following: a. How much interest will you accumulate if interest is compounded

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Question 178353: You have $760,000 in your bank account. The interest rate in your account is 5%. Solve for the following:
a. How much interest will you accumulate if interest is compounded annually over the next five years?
b. How much interest will you earn in your account over the next five years with continuous compounding?
Answer by EMStelley(208) About Me  (Show Source):
You can put this solution on YOUR website!
For part a, you need the equation for compounding n times per year:
A=P%281%2B%28r%2Fn%29%29%5E%28nt%29
So here, P=760,000, r=0.05, n=1, and t=5. So,
A=760000%281%2B%280.05%2F1%29%29%5E%281%2A5%29=969973.99
So to know the interest, we just subtract: $969,973.99-$760,000=$209,973.99.
Now, for part b), the formula for continuous compounding is
A=Pe%5E%28rt%29
So,
A=760000e%5E%280.05%2A5%29=975859.32
So the interest is $975859.32-$760000=$215,859.32