ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$34, 898.
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$40, 171.
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$164, 500.
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$328, 282.
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Detailed explanation-1: -.. With continuous compounding at 10 percent for 30 years, the future value of an initial investmentof $2, 000 is closest to$34, 898.
Detailed explanation-2: -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-3: -An investment of $1, 000 made today will be worth $1, 480.24 in five years at interest rate of 8% compounded semi-annually.
Detailed explanation-4: -Using the above example, the same $1, 000 invested for five years in a savings account with a 10% compounding interest rate would have an FV of $1, 000 × [(1 + 0.10)5], or $1, 610.51.
Detailed explanation-5: -Answer and Explanation: The correct answer is d) $1, 116.14.