Problem

Finding the initial amount in a word problem on continuous compound. How much should be invested now at an interest rate of $6.5 \%$ per year, compounded continuously, to have $\$ 1500$ in four years? Do not round any intermediate computations, and round your answer to the nearest cent.

Solution

Step 1 :Given that the final amount (A) is $1500, the interest rate (r) is 0.065 (or 6.5%), and the time (t) is 4 years, we need to find the initial amount (P) to be invested.

Step 2 :We use the formula for continuous compounding, which is A = P * e^(rt).

Step 3 :We rearrange this formula to solve for P: P = A / e^(rt).

Step 4 :Substituting the given values into the formula, we get P = 1500 / e^(0.065*4).

Step 5 :Calculating the above expression, we find that P = 1156.58.

Step 6 :Thus, the initial amount that should be invested now at an interest rate of 6.5% per year, compounded continuously, to have $1500 in four years is \(\boxed{1156.58}\).

From Solvely APP
Source: https://solvelyapp.com/problems/RXuPdOyLEN/

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