ECONOMICS (CBSE/UGC NET)

ECONOMICS

COMPOUND INTEREST

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Which equation do you use when asked to determine the amount after being compounded continuously?
A
A=Pert
B
A=(1+(r/n))nt
C
Either A or B
D
None of the above
Explanation: 

Detailed explanation-1: -The continuous compounding formula says A = Pert where ‘r’ is the rate of interest. For example, if the rate of interest is given to be 10% then we take r = 10/100 = 0.1.

Detailed explanation-2: -Step 2: The formula for continuously compounded interest is A=Pert A = P e r t . Since we are given everything except the initial investment, P, we can rearrange this equation such that P=Aert P = A e r t . Then, we substitute the given values into the equation for P and solve.

Detailed explanation-3: -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-4: -The basic PERT estimate equation used to determine your expected time is E= (O + 4M + P)/6. Once you have identified each time estimate, they can be plugged into the PERT formula to more effectively calculate a project’s duration.

There is 1 question to complete.