How much money would you need to invest in an account with 7% interest compounded continuously if you want to have $5000 at the end of 5 years? (Round to the nearest cent.)

Question

anonymous · Answer

do you know the formula for continuous compounding?

anonymous · Answer

Pe^rt

anonymous · Answer

right so, plug in the constants you know, what do you get?

anonymous · Answer

.35

anonymous · Answer

i don't think that's right, how did you get that number

anonymous · Answer

well i did.07*5 and got .35
then i put that in with e and got 1.41906

anonymous · Answer

okay you're almost there, what about the other constants

anonymous · Answer

what other constant? P ?

anonymous · Answer

yes, and what's it all equal to?

anonymous · Answer

im not sure

anonymous · Answer

IniitalPrincipal * e^(rt) = FinalValue

You already computed the e^(rt), which was the hard part, now you have two variables left, one known and one unknown.

anonymous · Answer

3524e^.53

anonymous · Answer

3524

anonymous · Answer

?

anonymous · Answer

yep!

InitialPrincipal is P, and your desired final value is 5000

So
 P * e^(rt) = 5000
P * 1.42 = 5000
P = 3523.44