ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$3868.10
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$3886.10
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$3688.10
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$3286.10
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Detailed explanation-1: -Calculating the limit of this formula as n approaches infinity (per the definition of continuous compounding) results in the formula for continuously compounded interest: FV = PV x e (i x t), where e is the mathematical constant approximated as 2.7183.
Detailed explanation-2: -How do you calculate interest compounded continuously? To compute interest compounded continuously, you need to apply the following formula. Interest = (Initial balance × ert)-Initial balance, where e, r, and t stand for exponential constant, periodic interest rate, and the number of periods, respectively.
Detailed explanation-3: -One example of continuous compounding in action is an account that earns interest at a rate of 14% per year, compounded monthly. The balance continually earns interest, which is added to the balance, and because there are 12 months in a year, the account balance increases by 1.17% each month.