Question

Peter put $8,000 into a savings account that pays 6% interest, compounded continuously. After five years, Peter will have $in the account. Hint: Use the formula A = Pert, where A is the amount after t years, P is the amount invested, r is the rate of interest, t is the time period, and e = 2.718. Use a calculator to compute your answer.

Answer 1

We have to calculate the amount of money Peter will have in his account after 5 years. Formula for the amount after t years with interest compounded continuously : A = P * e^(r t ). We know that r = 0.06; t = 5; e = 2.71 and P = $8,000. A = 8,000 * 2.718^( 0.06 * 5 ) = 8,000 * 2,718^( 0.3 ) = 8,000 * 1.3488158 = 10,798.53. Answer: B. $10,798.53.