Question

If $125 is invested at an interest rate of 18% per year and is compounded continuously, how much will the investment be worth in 2 years?
Use the continuous compound interest formula A = Per
$123

Answer 1

Answer:

$174.05

Step-by-step explanation:

To find the value of the investment at a later date:

$x * multiplier^n = y$

Here, $x$ is the original amount, $n$ is the number of times the amount compounds and $y$ is the new value.

Let's find the multiplier. Imagine the $125 to be 100%, because that is the full amount of the investment. If you add 18% onto 100%, the result is 118%.

To convert this into a multiplier, you simply divide by 100:

118 ÷ 100 = 1.18

The original amount $x$ in this case is equal to $125, so we can easily substitute that into the equation. We know our multiplier is 1.18. And here, the investment is compounded once per year, and this is over a two year period, meaning the original amount will be compounded twice overall. Therefore, $n=2$.

Finally, we substitute our values into the equation:

$125 * 1.18^2 =174.05$

This means our final answer is $174.05.