A savings account pays 7% interest, compounded continuously. How much should be deposited now in order to have $5000 in the account at the end of five years?
A) $4661.97
B) $2884.75
C) $3523.44
D) $533.83

Question

Quizplus · Accepted Answer

The formula for continuous compounding is A=Pe^rt, where A is the final amount, P is the principal (initial amount), r is the annual interest rate in decimal form, and t is the time in years. We are given A=$5000, r=0.07, and t=5. Solving for P, we get P=A/e^rt=$3523.44. Therefore, the best choice is C.

A Savings Account Pays 7% Interest, Compounded Continuously