Share
Explore BrainMass

# return with different compounding period

The formula for calculating the amount of money returned for deposit money into a bank account or CD (Certificate of Deposit) is given by the following:

a) Calculate the return (A) if the bank compounds annually (n = 1).
b) Calculate the return (A) if the bank compounds quarterly (n = 4). Round your answer to the hundredth's place.
c) Calculate the return (A) if the bank compounds monthly (n = 12). Round your answer to the hundredth's place.
d) Calculate the return (A) if the bank compounds daily (n = 365). Round your answer to the hundredth's place.
e) What observation can you make about the size of increase in your return as your compounding increases more frequently?
f) If a bank compounds continuous, then the formula becomes simpler, that is
where e is a constant and equals approximately 2.7183. Calculate A with continuous compounding. Round your answer to the hundredth's place.

See attached file for full problem description.

#### Solution Preview

Please see the attached file for detailed solution.
(e) The return ...

#### Solution Summary

The solution explains how to calculate the amount of money returned when the interest is compounded for different compound period or continuously in detail.

\$2.19