# Continuously compounded interest

• Apr 4th 2007, 07:52 PM
confusedagain
Continuously compounded interest
What is the present value of \$10,000 over a 5 year period of time if interest is compounded continuously at an annual rate of 7%?

***********
From what I understand, the formula is P = Be^-rt
So...
10,000 = Be^-.07(5)
10,000 = Be^-.35

Do I divide 10,000 by the value of e^-.35?
Could you give me some calculator hints?
• Apr 5th 2007, 03:37 AM
earboth
Quote:

Originally Posted by confusedagain
What is the present value of \$10,000 over a 5 year period of time if interest is compounded continuously at an annual rate of 7%?

***********
From what I understand, the formula is P = Be^-rt
So...
10,000 = Be^-.07(5)
10,000 = Be^-.35

Do I divide 10,000 by the value of e^-.35?
Could you give me some calculator hints?

Hello,

your considerations are OK (and I hope for you that you know why you should use this formula ;) )

From

10,000 = Be^(-.07*(5)) you get: B = 10,000 / (e^(-0.35) = 10,000 * e^(0.35) ≈ \$14,190.67

EB
• Apr 5th 2007, 05:16 PM
confusedagain
I must be doing something incorrectly. I may not be using the calculator in the right way. I am coming up with e^.35 = 0.692506438. Multiplying that by 10,000 is giving me 14,303.687, rounded up to 14,303.69.
• Apr 5th 2007, 05:21 PM
Jhevon
Quote:

Originally Posted by confusedagain
I must be doing something incorrectly. I may not be using the calculator in the right way. I am coming up with e^.35 = 0.692506438. Multiplying that by 10,000 is giving me 14,303.687, rounded up to 14,303.69.

I don't know what you are doing. First off, if e^(0.35) gave you 0.692506438 (which it shouldn't), if you multiplied that by 10000 you would get 6925.06 not 14,303.69.

earboth's calculations are correct. what kind of calculator do you have?
• Apr 5th 2007, 05:22 PM
confusedagain
Sorry, I figured it out
I was using the wrong key...I was using y^x instead of e^x
• Apr 5th 2007, 05:36 PM
Jhevon
Quote:

Originally Posted by confusedagain
I was using the wrong key...I was using y^x instead of e^x

ok, so you got it now?
• Apr 5th 2007, 07:22 PM
confusedagain
Got it
I got it now...I am using a scientific calculator (drug store brand CVS). When I started this course, they said calculators wouldn't be allowed for exams...so I have never really learned how to use this type of calculator and of course, since it was borrowed, I don't have the instruction book.