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+(r)/(n) )^(n*t)`

now, we can plug values

and we get

`A=11000(1+(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