Calculate the compound interest

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Reference no: EM1317399

Question: The formula for computing the amount of money returned for an initial deposit into a bank account or CD [certificate of deposit] is given by

65_compound interest.jpg

A is the amount of the return.

P is the principal amount initially deposited.

r is the annual interest rate (expressed as a decimal).

n is the number of compound periods in one year.

t is the number of years.

Carry all calculations to six decimals on each intermediate step, then round the final answer to the nearest cent.

Assume you deposit $2,000 for 5 years at a rate of 8%.

[A] Does compounding annually or quarterly yield more interest? Explain why.

[B] If a bank compounds continuously, then the formula used is A = P e x

[C] Calculate the return (A) if the bank compounds annually (n = 1). Give your answer to the hundredth's place.

[D] Calculate the return (A) if the bank compounds quarterly (n = 4). Give your answer to the hundredth's place.

Where e is a constant & equals approximately 2.7183.

Estimate A with continuous compounding. Give your answer to the hundredth's place.

[E] A commonly asked question is, "How long will it take to double my money?" At 8% interest rate & continuous compounding, what is the answer? Give your answer to the hundredth's place.

Reference no: EM1317399

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