Question

Use the compound interest formulas A = Pert and A = P(1 + ) to solve. Suppose that you have $11,000 to invest. Which investment yields the greater return over 10 years: 6.25% compounded continuously or 6.3% compounded semiannually? Show your work

Answer 1

Continuously

Explanation:

Compounded continuously:

A = Pe^(rt)

A = 11,000 e^(0.0625 × 10)

A = 20,550.71

Compounded semiannually (twice per year):

A = P(1 + r)^t

A = 11,000 (1 + 0.063/2)^(2×10)

A = 11,000 (1 + 0.0315)^20

A = 20,453.96