Answer:
To find the amount in the bank after 7 years, we can use the formula:
A = P(1 + r/n)^(nt)
where:
A = the amount in the bank after 7 years
P = the principal amount (initial investment)
r = the annual interest rate (as a decimal)
n = the number of times the interest is compounded per year
t = the number of years
For the given problem:
P = $4000
r = 10% = 0.1
t = 7 years
a) Compounded Annually:
n = 1
A = 4000(1 + 0.1/1)^(1*7) = $7449.36
b) Compounded Quarterly:
n = 4
A = 4000(1 + 0.1/4)^(4*7) = $7650.13
c) Compounded Monthly:
n = 12
A = 4000(1 + 0.1/12)^(12*7) = $7727.27
d) Compounded Continuously:
n → ∞ (as n approaches infinity)
A = Pe^(rt) = 4000e^(0.1*7) = $8193.85
Therefore, the amount in the bank after 7 years increases as the compounding frequency increases. If interest is compounded continuously, the amount in the bank will be the highest.