A bank is loaning 5000 for 3 years at an interest rate of 75

A bank is loaning $5,000 for 3 years at an interest rate of 7.5 percent. How much additional interest can the bank earn if it compounds interest continuously rather than annually? Multiple Choice $48.89 $56.67 $50.13 $51.78 $61.65

Solution

Amount when Continously compounded = principal * e^rt = 5000 * e^{7.5% * 3} = 6261.61
Amount when Compounded annually = Principal = A(1+r)^t = 5000 * (1+7.5%)³ = 6211.48

Extra Interest earned = 6261.61 - 6211.48 = 50.13

Option 3 is correct option

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