5 Exponential functions are useful in business and economics

5. Exponential functions are useful in business and economics. Lesson 7 discusses them. Show how the values are entered into your functions and also calculate the amounts for each of the following:

Solution

A1: Monthly inflation rate = 0.2%. Thus annualized rate = (1+0.2/100)^12 – 1

= 2.43%

A2: Here 1.05 = (1+r)^12

Or (1.05)^1/12 = 1+r

Or r = 0.407%

B1: F = 10,000*e^(0.06*10)

= 10,000*1.8221

= $18,221.18

B2: Here F = 141.02, r = 5.5% or 0.055 and t = 6.25

Thus P = 141.02/e^(0.055*6.25)

Or P = 141.02/1.4102

= $100

Now F = 20,000. R = 4.75% or 0.0475 and t = 7.5

Thus P = 20,000/e^(0.0475*7.5)

= $14,005.95