# Time Value of Money : Compounding Interest

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Suppose you deposit $10,000 for 2 years at a rate of 10%.

a) Calculate the return (A) if the bank compounds annually (n = 1). Round your answer to the hundredth's place.

If a bank compounds continuously, then the formula takes a 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 the attached file.

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#### Solution Preview

Your formula should be A=P*e^(rt), and applies only when we have continuous growth (in this case, interest being compounded continuously). Note that r is the rate expressed ...

#### Solution Summary

The time value of money regarding compounding interest is investigated. The solution is detailed and well presented.

$2.49