Question 887913: Which is the better deal, $10,000 invested at 5%, compounded yearly, for 20 years, or $5,000 invested at 10%, compounded continuously, for 20 years?
Answer by lwsshak3(11628)   (Show Source):
You can put this solution on YOUR website! Which is the better deal, $10,000 invested at 5%, compounded yearly, for 20 years, or $5,000 invested at 10%, compounded continuously, for 20 years?
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$10,000 invested at 5%, compounded yearly, for 20 years
compound interest formula: A=P(1+i)^n, P=initial investment, i=interest rate per compounding period, n=number of periods, A=amt after n-periods
For given problem:
P=$10000
i=.05
n=20
A=10000(1+.05)^20
A=10000(1.05)^20≈$26,533
..
$5,000 invested at 10%, compounded continuously, for 20 years
Formula for continuous compounding: A=Pe^rt, P=initial investment, r=interest rate, t=number of years, A=amt after t-years
For given problem:
P=$5000
r=0.10
t=20
A=amt after t-years
A=5000*e^.10*20
A=5000*e^2
A≈$36,945
...
$5000 investment compounded continuously is the better deal
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