A common component of investing money is to take advantage of a financial institution’s willingness to pay compound interest. Compound interest is basically interest paid on a deposit that continually accumulates interest. In general, the formula for compound interest can be represented by the following exponential function:
In this formula, P(t) represents the total money in the account after t years given the interest rate k which is compounded continuously. In this assignment, you will use this formula to explore the affect that compound interest can have over a period of time and at different interest rates.
Directions:
In a Microsoft Word document, prepare a report that includes answers to the following:.
Assignment 2 Grading Criteria |
Maximum Points
|
Calculated the growth of an investment compounded continuously at rate k = 0.5% over time intervals of 1, 5, and 10 years. |
40
|
Calculated the growth of an investment compounded continuously at rate k = 1% over time intervals of 1, 5, and 10 years. |
40
|
Calculated the growth of an investment compounded continuously at rate k = 1.5% over time intervals of 1, 5, and 10 years. |
40
|
Determined the doubling time for an investment compounded continuously at interest rates of k equal to 0.5%, 1%, and 1.5%. |
40
|
Explained the result that changing the interest has on the rate at which an investment grows. |
10
|
Critically compared the simple method of calculating compound interest to those used at a typical financial institution. |
10
|
Investigated other types of investment accounts and methods used to calculate compound interest at a typical financial institution. |
10
|
Compared and contrasted the calculation of simple interest and compound interest. |
10
|
Total: |
200
|
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