Question

25. How much do you need to deposit today at 5.4% interest compounded continuously in order to have $3,400 in 2 years? $

Answer 1

Answer:

$3052

Explanation:

Since we're told that the interest is compounded continuously, we'll use the below formula to solve the given problem;

$A=Pe^{rt}$

where A = future amount = $3400

P = principal amount = ?

r = nominal interest rate in decimal = 5.4/100 = 0.054

t = length of time interest is applied = 2 years

Let's go ahead and substitute the above values into our formula and solve for P;

$\begin{gathered} 3400=Pe^{0.054\times2} \\ 3400=1.114P \\ P=\frac{3400}{1.114} \\ P=3052 \end{gathered}$