How to Calculate the Value of Continuous Compounding Investment
What is the formula for calculating the value of continuous compounding?
Given a principal amount of $7000 invested at 4.4% annual interest rate for 8.2 years, how can we determine the value of the investment using continuous compounding?
Formula for Continuous Compounding
To calculate the value after a certain period of continuous compounding, we use the formula:
A = P * e^(rt)
Continuous compounding is a method in finance where interest is constantly being calculated and added to the principal amount. In this case, we have an initial investment of $7000 with an annual interest rate of 4.4% and a time period of 8.2 years.
Let's plug in the given values into the formula:
A = $7000 * e^(0.044 * 8.2)
After performing the calculations, we find:
A ≈ $10,021.13
Therefore, the value of the investment after 8.2 years of continuous compounding would be approximately $10,021.13.