Some amount of money is to be invested today at 7% compounded continuously so that 10 years from now the account will be worth $5,000. The amount is $2,000.

Question

Quizplus · Accepted Answer

The formula for continuous compounding is $A = Pe^{rt}$, where $A$ is the future value, $P$ is the principal amount (initial investment), $r$ is the annual interest rate (in decimal form), and $t$ is the time in years. Given $A = 5000$, $r = 0.07$, and $t = 10$, solving for $P$ does not yield $2000$.

Some Amount of Money Is to Be Invested Today at 7