A person deposited 1000 dollars in 1996 in a bank that paid

A person deposited 1000 dollars in 1996 in a bank that paid 6% interest. How much would be the balance in year 2016 if interest were compounded quarterly? How much would it be the balance if compounded continuously at a rate of 6%?

Solution

Principal = $ 6000 deposited in 1996

a) interest rate = 6% compounded quarterly

In 2016 , Amount = Principal[ 1+r/12]^(10*12)

= 6000[ 1+0.06/12]^120

= $10916.40

b) compunded continously

Amount = 6000e^(0.06*10

= 6000*1.822

= $ 10932