Question

How do you compound interest continuously??

Answer 1

The question states the interest is compounded annually. We have to use the given formula for this.

Principal Amount = P = $500
Interest Rate = r = 6% = 0.06
Time in years = t = 12
Compounding periods in a year = n = 1

Using the values in the given formula we get:


`A(t)=500(1+ (0.06)/(1))^(12*1) \\ \\ A(t)=$1006.10`

Thus, rounding to nearest cent the answer to this question is 1006.10

However, if you are also interested in finding the compound interest that is compounded continuously, use the following formula:


`A(t)=Pe^(rt)`