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    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.