SOLUTION: 4. 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 compound

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Question 388400: 4. 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? You can use a scientific calculator or the =Exp() function in Microsoft Excel. If you are crafty you can also find web pages that will do the calculations for you. Regardless, show your steps and your work.

Found 2 solutions by rfer, lwsshak3:
Answer by rfer(16322) About Me  (Show Source):
You can put this solution on YOUR website!
a)
A=760000(1+0.05)^5
A=760000*1.27628
A=969972.80
Interest=$209,972.80
b)
A=760000*(2.7183)^0.05*5
A=975860.95
Interest=$215,860.95

Answer by lwsshak3(11628) About Me  (Show Source):
You can put this solution on YOUR website!
4a. Use the compound interest formula to solve this problem. The formula will give the value(A) of the principal(P) after 5 years. The difference between A & B is the amount of interest accumulated over 5 years.
A=760000(1+.05)^5=969973.99
969973.99-760000=209973.99
ans: interest accumulated over 5 years with regular compounding is $209973.99
4b. Use the continuous compounding formula to solve this problem.
A=Pe^rt
Using a scientific calculator, A=760000*e^(.05*5)=
=760000*e^.25=975859.32
975859.32-760000=215859.32
ans: interest earned over 5 years with continuous compounding is $215859.32