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A principal amount of $830 is placed in a savings account with an annual interest rate of 3.72% compounded continuously. What is the total account balance after 23 years?

$1,950.23
$1,952.81
$1,120.23
$1,122.81

User Hans Meyer
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1 Answer

7 votes

Final answer:

The total account balance after 23 years with an initial principal amount of $830 at an annual interest rate of 3.72% compounded continuously is approximately $1,952.23. This is calculated using the formula for continuous compounding, A = Pe^(rt), resulting in $1,952.81 as the closest answer from the provided options.

Step-by-step explanation:

Calculating the Future Value with Continuous Compounding

When calculating the future value of an investment with continuous compounding, we use the formula A = Pert, where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), t is the time the money is invested for, and e is the base of the natural logarithm, approximately equal to 2.71828.

To find the total account balance after 23 years for an initial principal of $830 at an annual interest rate of 3.72% compounded continuously, we plug these values into the formula:

A = 830 x e(0.0372 x 23)

Which gives us the total future amount. So,

A ≈ 830 x e(0.8556)

By calculating this, we find that the future value A, or the total account balance after 23 years, is approximately:

A ≈ 830 x 2.3522 ≈ $1,952.23

The option that most closely matches this calculation is $1,952.81, which seems to be the correct answer to the question, considering a possible minimal discrepancy due to rounding during the calculation process.

User Dariusz Mydlarz
by
8.2k points
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