Question 48083
A is the amount of returned
P is the principal amount deposited
r is the annual interest rate (expressed as a decimal)
n is the compound period
t is the number of years 
Suppose you deposit $20,000 for 3 years at a rate of 8%.
a) Calculate the return (A) if the bank compounds annually (n = 1).
Answer: 
Show work in this space. Use ^ to indicate the power
{{{A = P(1 + r/n)^(nt)}}}
{{{A = 20000(1 + 0.08)^(3) = 20000(1.08)^3 = 25194.24}}}
b) Calculate the return (A) if the bank compounds quarterly (n = 4). Round your answer to the hundredth's place.
Answer:
{{{A = P(1 + r/n)^(nt)}}}
{{{A = 20000(1 + 0.08/4)^(4*3) = 20000(1.02)^12 = 25364.84}}}
c) Calculate the return (A) if the bank compounds monthly (n = 12). Round your answer to the hundredth's place.
Answer:
{{{A = P(1 + r/n)^(nt)}}}
{{{A = 20000(1 + 0.08/12)^(12*3) = 20000(1.00666667)^36 = 25404.74}}}
d) Calculate the return (A) if the bank compounds daily (n = 365). Round your answer to the hundredth's place.
Answer:
{{{A = P(1 + r/n)^(nt)}}}
{{{A = 20000(1 + 0.08/365)^(365*3) = 20000(1.00021917)^1095 = 25424.31}}}
e) What observation can you make about the size of increase in your return as your compounding increases more frequently?
n = 1 ~> 25194.24
n = 4 ~> 25364.84
n = 12 ~> 25404.74
n = 365 ~> 25424.31
As you compound your money more often, you recieve more income from interest. You will acquire more money.
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.
Answer: 
Show work in this space 
A=Pe^(rt)
A = 20000e^(.08*3)
A = 20000e^.24
A = 20000* 1.27124915
A = 25,424.98
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.
Answer:
A = Pe^(r*t)
25000 = 20000e^(0.08*t)
5/4 = e^(0.08*t)
ln(1.25) = 0.08t
ln(1.25)/0.08 = t = 2.79
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.
A = Pe^(r*t)
2P = Pe^(0.08*t)
2 = e^(0.08t)
ln(2) = 0.08t
ln(2)/0.08 = t = 8.66