SOLUTION: Can you please help me with this? Thank you so much! Take the current amount you have in your checking or savings account. Suppose you have a choice of keeping your money for

Algebra ->  Logarithm Solvers, Trainers and Word Problems -> SOLUTION: Can you please help me with this? Thank you so much! Take the current amount you have in your checking or savings account. Suppose you have a choice of keeping your money for       Log On


   

Question 174246: Can you please help me with this? Thank you so much!
Take the current amount you have in your checking or savings account. Suppose you have a choice of keeping your money for five years in a savings account with a 2% interest rate, or in a five year certificate of deposit with and interest rate of 4.5%. Calculate how much interest you would earn with each option over five years time with continuous compounding.
Assuming $2500 in savings.
Answer by solver91311(24713) About Me  (Show Source):
You can put this solution on YOUR website!
The formula for continuous compounding is FV=Pe%5E%28rt%29 where FV is the future value of the investment, P is the current principal, e is the base of the natural logarithms, r is the rate per time period (per year in this case), and t is the number of time periods (number of years here).

So for the Savings Account: FV=2500e%5E%280.02%2A5%29


And for the CD: FV=2500e%5E%280.045%2A5%29

The interest earned in each case is then FV-P

Calculate the value of the exponent, check the "Inv" box, and then use the "ln" button on your Windows calculator in Scientific mode. Or, if you have access to MS Excel, use the "EXP()" function to do your calculations.