# compounded interest

• Dec 15th 2007, 09:38 AM
brandilee
compounded interest
Suppose you have a choice of keeping \$500 for five years in a savings account with a 2% interest rate, or in a five year certificate of deposit with and interest rate of 4.5%. Calculate how much interest you would earn with each option over five years time with continuous compounding.

for the first part, would it be A(5)=500*e(.02*5/100)
A(5)=2550.5?
that doesnt seem right to me, but im not sure what else to do.
• Dec 15th 2007, 09:45 AM
Constatine11
Quote:

Originally Posted by brandilee
Suppose you have a choice of keeping \$500 for five years in a savings account with a 2% interest rate, or in a five year certificate of deposit with and interest rate of 4.5%. Calculate how much interest you would earn with each option over five years time with continuous compounding.

for the first part, would it be A(5)=500*e(.02*5/100)
A(5)=2550.5?
that doesnt seem right to me, but im not sure what else to do.

Check what you are doing and your arithmetic. The formula is wrong, and if
that is what you evaluated you did it wrong, nor is it the result of evaluating
the correct formula.

ZB
• Dec 15th 2007, 09:49 AM
brandilee
what formula should i be using?
• Dec 15th 2007, 09:53 AM
Constatine11
Quote:

Originally Posted by brandilee
what formula should i be using?

you could try either 500*e^(2*5/100) or 500*e^(0.02*5)

ZB