If a term deposit offers an interest rate of 10% p.a. ,compounding continuously,how much will an initial investment of $50 000 be worth after one year?
A)$55 258
B)$135 914
C)$62 519
D)$98 352

Question

Quizplus · Accepted Answer

Using the continuous compound interest formula:

A = Pe^(rt)

where:
A = amount after one year
P = initial investment = $50 000
r = interest rate as a decimal = 0.10
t = time in years = 1

A = 50 000 x e^(0.10 x 1)
A = 50 000 x e^(0.10)
A = 50 000 x 1.105170918
A = $55 258.55 (rounded to the nearest cent)

Therefore, the best choice is A, as it correctly identifies the amount the initial investment will be worth after one year with continuous compounding.

If a Term Deposit Offers an Interest Rate of 10