ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Option A
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Option B
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Both Options
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Neither Option
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Detailed explanation-1: -Here, the time period for each interest is one year and n=5 such time periods have passed. We are given that P=$5000, r=4 . Hence, A=5000∗(1+0.04)5=$6083.2645 A = 5000 ∗ ( 1 + 0.04 ) 5 = $ 6083.2645 .
Detailed explanation-2: -What will be the maturity value of P12, 000 invested for 4 years at 15% compounded quarterly? A. The investment will grow to P720, 000 after 4 years.
Detailed explanation-3: -That means we have 20 compounding periods.
Detailed explanation-4: -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.