What would my balance be if I had $100 in a savings account that had a 2% interest rate and I kept the account for a 5 year period, using continuos compounding?
continuous compounding formula:
amount = principal (e^it), t is number of years, i is the annual interest rate.
amount = 100(e^(5x.02)
= 100e^.1
=110.52
check: should be close to the answer we get if we compounded daily.
amount if compounded daily
= 100( 1 + .02/365)^(5*365)
= 110.52
Well, how about that?