Also could anyone type in the answer they got.
Thank You.
An investment service promises to triple your money in 12 years. Assuming continuous compounding of interest, what rate of interest is needed?
For the question is it asking me if simple interest or continuously compounded interest is needed?
Or
Is it asking for a number in the rate of interest like .06 ?
Also, would anyone know which equation I should use? 1) Exponential Growth
2) Af=A0((1)+(r/n))^nt
3) A=Pe^rt
I think it's A=Pe^rt (Continuous Growth) or maybe Af=A0((1)+(r/n))^nt (Compound Interest)
2 answers
Investment companies usually do not deal in continuous compounding of interest, usually they are quoted as compounded annually, compounded semi-annually, compounded monthly or something like that.
let's assume an annual interest rate, so we would have
3 = (1+i)^12
take 12th root of both sides
3^(1/12) = 1+i
1+i = 1.09587
i = .09587 or 9.587% per annum
for continuous growth
3 = e^(12r)
12r = ln3
r = ln3/12 = .09155 or 9.155%
let's assume an annual interest rate, so we would have
3 = (1+i)^12
take 12th root of both sides
3^(1/12) = 1+i
1+i = 1.09587
i = .09587 or 9.587% per annum
for continuous growth
3 = e^(12r)
12r = ln3
r = ln3/12 = .09155 or 9.155%
2 answers