A department store credit card advertises no payments for 2 years on purchases. What they do not advertise is that interest is compounded continuously for those two years at an annual rate of 19.7%. If you make a purchase of $550 and make no payments for 2 years, how much would you owe at the End of those 2 years?
A) $216.70
B) $815.60
C) $17,127.60
D) $766.70

Question

Quizplus · Accepted Answer

The amount owed can be calculated using the formula for continuous compounding: A = Pe^(rt), where P is the principal amount ($550), r is the annual interest rate (0.197), and t is the time in years (2). Plugging in these values, A = 550 * e^(0.197*2) ≈ $815.60.

A Department Store Credit Card Advertises No Payments for 2