Question

Jimmy invests $2000 in a money market account earning 8.5% interest compounded continuously. Which of the following is an equation that can be used to determine the value

of Jimmy's investment account after t years?

Answer 1

`A=2000e^(0.085t)`

Explanation:

Make sure you understand the formula for continuous compounding first. The formula is:

`A=Pe^(rt)` where

A= Total

P= Principal (or the amount invested at beginning)

r= Interest rate (as a decimal)

t= Time (in years)

Note: e is an irrational mathematic number similar to π. Its value is around 2.72, but for these problems, you’ll need to use the version already on your calculator that will be called “
`e^(x)`.” On most calculators, it can be accessed by 2nd → ln.

Find the values that you are given:

A= What you are looking for

P= 2000

r= 8.5% as a decimal = 0.085

t= What you change

Plug these into the equation:

`A=2000e^(0.085t)`

This is the answer!