1. Find Interest Rate i = ?
Principal P = 1000, Time n = 5 Year, Future value FV = 1649,
for Contineous Compounding methodSolution:P=1000n=5 years (Number of periods)
FV=1649 (Future value)
FV=P*e^(i*n):.1649=1000*e^(i*5):.1649/1000=e^(i*5)e^(i*5)=1.65taking natural log on both the sides
:.ln(e^(i*5))=ln(1.65):.i*5=0.5:.i=0.5/5:.i=0.1:.i=10 % per year
Year | Principal | Yearly Interest | Total Interest | Total Balance |
0 | 1000 | 0 | 0 | 1000 |
1 | 1000 | 105.21 | 105.21 | 1105.21 |
2 | 1000 | 116.28 | 221.49 | 1221.49 |
3 | 1000 | 128.51 | 350 | 1350 |
4 | 1000 | 142.03 | 492.03 | 1492.03 |
5 | 1000 | 156.97 | 649 | 1649 |
2. Find Interest Rate i = ?
Principal P = 5000, Time n = 3 Year, Future value FV = 6749,
for Contineous Compounding methodSolution:P=5000n=3 years (Number of periods)
FV=6749 (Future value)
FV=P*e^(i*n):.6749=5000*e^(i*3):.6749/5000=e^(i*3)e^(i*3)=1.35taking natural log on both the sides
:.ln(e^(i*3))=ln(1.35):.i*3=0.3:.i=0.3/3:.i=0.1:.i=10 % per year
Year | Principal | Yearly Interest | Total Interest | Total Balance |
0 | 5000 | 0 | 0 | 5000 |
1 | 5000 | 525.77 | 525.77 | 5525.77 |
2 | 5000 | 581.06 | 1106.84 | 6106.84 |
3 | 5000 | 642.16 | 1749 | 6749 |
This material is intended as a summary. Use your textbook for detail explanation.
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