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[Return to Problems] © 2007 Paul Dawkins 307 http://tutorial.math.lamar.edu/terms.aspx College Algebra Applications
In this final section of this chapter we need to look at some applications of exponential and
This first application is compounding interest and there are actually two separate formulas that
we’ll be looking at here. Let’s first get those out of the way.
If we were to put P dollars into an account that earns interest at a rate of r (written as a decimal)
for t years (yes, it must be years) then,
1. if interest is compounded m times per year we will have rö
A = P ç1 + ÷
è mø tm dollars after t years.
2. if interest is compounded continuously then we will have A = Pe r t
dollars after t years.
Let’s take a look at a couple of examples. Example 1 We are going to invest $100,000 in an account that earns interest at a rate of 7.5%
for 54 months. Determine how much money will be in the account if,
(a) interest is compounded quarterly. [Solution]
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- Spring '12