Problem

If $\$ 500$ is invested at an interest rate of $5.5 \%$ per year, find the amount of the investment at the end of 12 years for the following compounding methods. (Round your answers to the nearest cent.) (a) Annually $\$$ (b) Semiannually $\$$ (c) Quarterly $\$$ (d) Continuously $\$$

Solution

Step 1 :\(A = P(1 + r/n)^{nt}\)

Step 2 :For annually, \(n = 1\). So, the formula becomes \(A = P(1 + r)^t\)

Step 3 :Substituting the given values, we get \(A = 500(1 + 0.055/1)^{1*12}\)

Step 4 :Solving the equation, we get \(A = 500(1.055)^{12}\)

Step 5 :Further simplifying, we get \(A = 500 * 1.8983\)

Step 6 :\(\boxed{A = \$949.15}\)

Step 7 :For semiannually, \(n = 2\). So, the formula becomes \(A = P(1 + r/2)^{2t}\)

Step 8 :Substituting the given values, we get \(A = 500(1 + 0.055/2)^{2*12}\)

Step 9 :Solving the equation, we get \(A = 500(1.0275)^{24}\)

Step 10 :Further simplifying, we get \(A = 500 * 1.9051\)

Step 11 :\(\boxed{A = \$951.55}\)

Step 12 :For quarterly, \(n = 4\). So, the formula becomes \(A = P(1 + r/4)^{4t}\)

Step 13 :Substituting the given values, we get \(A = 500(1 + 0.055/4)^{4*12}\)

Step 14 :Solving the equation, we get \(A = 500(1.01375)^{48}\)

Step 15 :Further simplifying, we get \(A = 500 * 1.9074\)

Step 16 :\(\boxed{A = \$953.70}\)

Step 17 :The formula for continuously compounded interest is \(A = Pe^{rt}\)

Step 18 :Substituting the given values, we get \(A = 500e^{0.055*12}\)

Step 19 :Solving the equation, we get \(A = 500 * e^{0.66}\)

Step 20 :Further simplifying, we get \(A = 500 * 1.9350\)

Step 21 :\(\boxed{A = \$967.50}\)

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Source: https://solvelyapp.com/problems/tTZZelFShk/

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