Question

Stan borrows $5,500 at a rate of 12% interest per year. What is the amount due at the end of 5 years if the interest is compounded continuously? In your final answer, include your calculations.

Answer 1

Stan borrows $5,500.00 at a rate of 12% interest per year.

Now, the due amount at the end of 5 years can be calculated by the formula for the due amount when it is compounded annually.

To find the due amount we can use the following formula:

$A=Pe^{rt}$

Where, A is the final amount,

P is the principal amount, r is the rate of interest and t is the time duration.

We need to find A, plugging the values of P, r, and t, we get:

$A=5500(e^{0.05\times 5})=5500\times e^{0.25}=5500\times 1.284=7062$

Since the interest is compounded continuously, the due amount at the end of 5 years is $7062.00.