In this case all we need to do is plug in t1000 into

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Unformatted text preview: we are compounding monthly and so that means we are compounding 12 times a year. Here is how much we’ll have after 54 months. æ 0.075 ö A = 100000 ç1 + ÷ 12 ø è = 100000 (1.00625 ) (12)( 4.5) 54 = 100000 (1.39996843023) = 139996.843023 = $139,996.84 So, compounding more times per year will yield more money. [Return to Problems] (c) Interest is compounded continuously. Finally, if we compound continuously then after 54 months we will have, A = 100000e( 0.075)( 4.5) = 100000 (1.40143960839 ) = 140143.960839 = $140,143.96 [Return to Problems] Now, as pointed out in the first part of this example it is important to not round too much before the final answer. Let’s go back and work the first part again and this time let’s round to three decimal places at each step. æ 0.075 ö A = 100000 ç1 + ÷ 4ø è ( 4)( 4.5) = 100000 (1.019 ) 18 = 100000 (1.403) = $140,300.00 This answer is off from the correct answer by $593.31 and that’s a fairly large difference. So, how many decimal places should we keep in...
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This note was uploaded on 06/06/2012 for the course ICT 4 taught by Professor Mrvinh during the Spring '12 term at Hanoi University of Technology.

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