# Continuously Compounded Interest

• Sep 30th 2010, 11:14 AM
theuniverse
Continuously Compounded Interest
1. The problem:
A new savings account with an initial balance of zero is made. You save money continuously, at a rate of \$500 per month. Also, every month you plan to increase this rate by \$5. you've found a bank account that pays continously compounded interest at a rate of 8% per year. Estimate how long it will take for you to save one million dollars.

2. The attempt at the solution:
I decided to take care of the saving rate first: since my interest is per year I decided to convert the savings to a yearly rate as well where k=500*12=6000, then I had to take care of the increments so I write it as 6000+60t where 60 is found by 5*12, and the t is in years so that every year 60\$ are added to the initial saving rate.

I then tried to use the formula: S(t) = S(initial)*e^rt + [(k+60t)/r][(e^rt)-1)]
I subbed in my values, and 1 million for S(t) but the problem is that I can't isolate for t and always end up having e^0.08t - t = some number.

Is there a different way I should approach this problem?
Thanks!
• Sep 30th 2010, 01:59 PM
SpringFan25
you only have to give an approximate answer so you dont ahve to solve for t. You can use trial and error to find approximate values of t (say, to the nearest month).

NB: Ive assumed your formula for S(t) is correct and haven't checked it.