Question

Using the formulas given in class for continuous and compound interest, show your calculated values for each investment below.

A) Placing $875 in an account giving 13.5% APR compounded daily for 2 years:

B) Placing $1000 in an account given 6.7% APR compounded continuously for 2 years:

C) Placing $1050 in an account giving 4.5% APR compounded monthly for 2 years:

D) RANK them in order from best (i.e. yielding the most interest) to worst (hint: compare either $ or % gain (APR)):

Answer 1

equation to find value of investment in compounded investment with n compounding per year is

here P is amount invested . r is rate of interest in decimal .if Apr is given , then r=Apr/100 . t is number of years .

for continues compounding ,value of investment is

a) here P=875 , r=0.135 ,t=2 . here number of compounding is 365 per year . so n=365. so value of investment is

so answer is 1146.16

B) here P= 1000 . r=0.067 ,t=2

so answer is 1143.39

c) here P=1050 , r=0.045 ,t=2 . here number of compounding per year is 12 . so n=12

so answer is 1148.69

d) most interest is for heighest rate of interest . so first investment with Apr 13.5 will have height rate , then second investment ,then third with low Apr .

so rank is

option A

option B

option C