Question

Use the compound interest formulas A = Pert and A = P1+rnnt to solve. Suppose that you have $11,000 to invest. Which investment yields the greater return over 10 years: 6.25% compounded continuously or 6.3% compounded semiannually? Show your work.

Answer 1

We are given

amount $11,000 to invest

so,

P=11000

For Compounded continuously:

P=11000

r=0.0625

t=10

now, we can use formula

$A=Pe^{rt}$

now, we can plug values

and we get

$A=11000e^{0.0625*10}$

we get

$A=20550.70553$

Amount is $ 20550.70553

For Compounded semi-annually:

P=11000

r=0.063

t=10

n=2

now, we can use formula

$A=P(1+\frac{r}{n} )^{n*t}$

now, we can plug values

and we get

$A=11000(1+\frac{0.063}{2} )^{2*10}$

now, we can simplify it

$A=20453.95666$

so, Amount is $20453.95666

so, amount for compounded continuously is greater...........Answer