Question

Edgar accumulated $3,000 in credit card debt. If the interest rate is 50% per year and he does not make any payments for

3 years, how much will he owe on this debt in 3 years by compounding continuously?
Provide your answer below:

Answer 1

$7,459.12

Explanation:

The formula for continuous compounding is

A = Pe^(rt), where P is the original amount, A is the accumulated amount, r is the interest rate as a decimal fraction, and t is the number of years. We want to know how much he will owe on this original $5,000 credit card debt after 2 years.

A = $5,000e^(0.20*2)

= $7,459.12

Explanation:

The formula for continuous compounding is

A = Pe^(rt), where P is the original amount, A is the accumulated amount, r is the interest rate as a decimal fraction, and t is the number of years. We want to know how much he will owe on this original $5,000 credit card debt after 2 years.

A = $5,000e^(0.20*2)

= $7,459.12