Moneybag Bank & Trust is offering $200,000 loans at 5% compounded continuously. Before you decide to borrow using that interest rate, what amount would need to be paid back if the loan is for 10 years?

Question

Quizplus · Accepted Answer

The formula for continuous compounding is $A = P e^{rt}$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount (the initial amount of money), $r$ is the annual interest rate (decimal), and $t$ is the time the money is invested or borrowed for, in years. For this problem, $P = 200,000$, $r = 0.05$, and $t = 10$. Plugging these values into the formula gives $A = 200,000 * e^{(0.05*10)} = 200,000 * e^{0.5} ≈ 329,744.00$.

Moneybag Bank & Trust Is Offering $200,000 Loans at 5