Question

A certain loan program offers an interest rate of 9%, compounded continuously. Assuming no payments are made, how much would be owed after fiveyears on a loan of $2600?Do not round any intermediate computations, and round your answer to the nearest cent.

Answer 1

For this problem we use the continuously compounded interest formula:

`M=M_0e^(rt)`

where M_0 is the initial amount, r is the interest rate and t is the number of years. Substituting M_0=$2600, r=0.09, and t=5 we get:

`M=2600e^(0.09\cdot5)=2600e^(0.45)=4077.61`