ECONOMICS
COMPOUND INTEREST
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Question
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A student solves a problem about continuously compounded interest and determines that r = .3
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They should conclude that the interest rate is .3%
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They should conclude that the interest rate is 3%
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They should conclude that the interest rate is 30%
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They should conclude that the interest compounded for .3 years
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Explanation:
Detailed explanation-1: -Compound interest, can be calculated using the formula FV = P*(1+R/N)^(N*T), where FV is the future value of the loan or investment, P is the initial principal amount, R is the annual interest rate, N represents the number of times interest is compounded per year, and T represents time in years.
Detailed explanation-2: -Continuous Compounding Formula = P * erf where, P = Principal amount (Present Value) t = Time. r = Interest Rate.
Detailed explanation-3: -Continuous compounding means that there is no limit to how often interest can compound. Compounding continuously can occur an infinite number of times, meaning a balance is earning interest at all times.
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