147k views
0 votes
Suppose you invest $1600 at an annual interest rate of 4.6% compounded continuously. How much will you have in the account after 4 years?

a.$10,138.07
b .56,701.28
c .$800.26

User Dat
by
7.6k points

1 Answer

3 votes

Final answer:

The correct future value of the investment using continuous compounding is not listed among the provided choices. By using the continuous compounding formula, A = Pert, we find that the future value is higher than the initial investment but considerably less than the options provided.

Step-by-step explanation:

The student's question involves calculating the future value of an investment using the formula for continuous compounding: A = Pert, where A is the future value, P is the principal amount, r is the annual interest rate (expressed as a decimal), t is the time in years, and e is the base of the natural logarithm, approximately equal to 2.71828.

For the given problem, the principal P is $1600, the annual interest rate r is 4.6% or 0.046, and the time t is 4 years. Plugging these values into the formula gives:

A = 1600e(0.046 × 4).

Now, calculate the exponent: 0.046 × 4 = 0.184. Then, calculate e raised to this power using a calculator that has an ex function, or using an online tool:

A = 1600e0.184

Which gives us the future value. Comparing this value with the options provided, it will certainly not be as high as $10,138.07 or $56,701.28 for such a small investment over just 4 years, so both choices a and b are unreasonable. Without calculating the exact amount, choice c $800.26 is also unreasonable because it is lower than the original investment. Therefore, the answer must be a value not listed in the choices, which can be calculated using the formula provided.

User Jintin
by
8.6k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.