# compounded continuously question

• February 5th 2008, 02:34 PM
killasnake
compounded continuously question
Hi I'm trying to solve this compounded continuously question.

A bank pays interest at a rate of 10.6%, compounded continuously. How much should be invested so as to have 11 thousand dollars in 6 years?

Formula: Ae^rt

So I have:

11000e^(10.6)(6) =240809024.6

Thats not correct huh.
• February 5th 2008, 02:41 PM
chris_uk
an increase of 10.6% gives a multiplying factor of 1.106 times more than what it was before use this instead
• February 5th 2008, 02:50 PM
killasnake
so basically it's 11000e^(1.106)(6)

I come up with the answer 199468.1834, but it's still incorrect
• February 5th 2008, 03:04 PM
chris_uk
unless im mistaken the question doesn't involve e and it is a compound interest question meaning that the formula is infact

total amount= original amount*(multiplying factor^no. of yrs)
therefore
=11000*(1.106^6)
=20133.69

no. it says compounded CONTINUOUSLY. we indeed use the formula $A(t) = A_0 e^{rt}$
the problem is, the original poster does not know what to plug in where. he/she plugged in 11000 for $A_0$ when, in fact, $A_0$ is what you should be solving for.
you want to solve $11000 = A_0e^{0.106(6)}$ for $A_0$