Question

Lucky Jack wins the lottery! He deposits $100,000 in an account that earns 4% interest compounded continuously. How much money is in the account at the end of 5 years?

A) $120,357
B) $122,140
C) $125,620
D) $225,820

Answer 1

Option B) $122,140

Explanation:

we know that

The formula to calculate continuously compounded interest is equal to

`A=P(e)^(rt)`

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

e is the mathematical constant number

we have

`t=5\ years\\ P=\$100,000\\ r=0.04`

substitute in the formula above

`A=\$100,000(e)^(0.04*5)=\$122,140.28`

Round to the nearest dollar

`\$122,140.28=\$122,140`