You are going to loan your friend $1,000 for one year at a 5% rate of interest. How much additional interest can you earn if you compound the rate continuously rather than annually?

Question

Quizplus · Accepted Answer

When interest is compounded continuously, the formula used is A = Pe^(rt). For $1,000 at 5% interest for one year, A = 1000 * e^(0.05). This results in approximately $1,051.27. Compounding annually would give $1,050. The difference is $1.27.

You Are Going to Loan Your Friend $1,000 for One