When a child was born, her grandparents placed $1000 in a savings account at 10% interest compounded continuously, to be withdrawn at age 20 to help pay for college. How much money is in the account at the time of withdrawal?

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 deposited or borrowed for, in years. Here, $P = 1000$, $r = 0.10$, and $t = 20$. Plugging these values into the formula gives $A = 1000 e^{(0.10)(20)} = 1000 e^{2}$.

When a Child Was Born, Her Grandparents Placed $1000 in a Savings