Question

An initial amount of money is placed in an account at an interest rate of 4% per year, compounded continuously. After four years, there is $1255.66 in the account. Find the initial amount placed in the account. Round your answer to the nearest cent.

Answer 1

We can use the continuous compounding formula to solve this problem:

A = Pe^(rt)

where A is the final amount, P is the initial amount, r is the interest rate, and t is the time in years.

In this problem, we know the final amount (A = $1255.66), the interest rate (r = 4% = 0.04), and the time (t = 4 years). We want to find the initial amount (P).

Substituting the known values into the formula, we get:

1255.66 = Pe^(0.04*4)

Simplifying the exponent:

1255.66 = Pe^0.16

Dividing both sides by e^0.16:

1255.66 / e^0.16 = P

Using a calculator to evaluate e^0.16, we get:

1255.66 / 1.17351087099 = P

Simplifying:

P = $1069.44

Therefore, the initial amount placed in the account was $1069.44 (rounded to the nearest cent).

Explanation:

compounded continuously, given that there is $1255.66 in the account after four years, we can use the formula:

A = Pe^(rt)

where A is the final amount, P is the initial amount, r is the interest rate, and t is the time in years.

Substituting the known values into the formula, we get:

1255.66 = Pe^(0.04*4)

Simplifying the exponent:

1255.66 = Pe^0.16

Dividing both sides by e^0.16:

P = 1255.66 / e^0.16

Using a calculator to evaluate e^0.16, we get:

P = 1069.44

Therefore, the initial amount placed in the account was $1069.44 (rounded to the nearest cent).

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