Question

Jermaine invests $2,711 in an account that earns 4.2% that is compounded on a continuous basis. If leaves that money in the account for 11 years, what will be the amount of INTEREST that Jermaine was able to earn? [YOU ARE ASKED TO FIND THE INTEREST ONLY!)

Answer 1

Recall the formula for continuously compounded interest:

`A=P\cdot e^(r\cdot t)`

Where P is the principal (in our case $2711),

A is the accumulated total at the end of the investing period,

r is the annual interest rate (in our case 4.2% which in decimal form becomes: 0.042)

t is the time of the investment in years (in our case 11)

Then, we have:

`A=2711\cdot e^(.462)=\text{ }4303.02`

Then, the amount that is strictly the interest would be the difference:

4303.02 - 2711 = $1592.02