Question

How much more would be in

an account that has interest
compounded continuously
rather than annually if the
initial deposit is $500 and the
yearly interest rate is 7% for
10 years?

Answer 1

It will be $506.876 more.

Explanation:

The equation for continuously compounded interest is given by

`A = P(e)^(rt)` .......... (1)

where, A is the final amount, P is the principal amount, r is the annual interest rate and t is the number of years.

Now, in our case, P = $500, r = 7% i.e 0.07 and t = 10 years.

Then, from equation (1),

`A = 500 * (e)^(0.07 * 10) =  1006.876` dollars

Therefore, the interest will be (A - P) = $(1006.876 - 500) = $506.876. (Answer)