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Time Value of Money : Compounding Interest

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.


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 ...

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Compounding interest is investigated. The solution is detailed and well presented. The response received a rating of "5/5" from the student who originally posted the question.