If Interest Is Compounded Continuously Then The Amount Of Money In A Bank Account In T Years Is

That may be a great idea in algebra class, but it is an extremely unpracticable idea anywhere else. Banks typically pay interest not more often than monthly, more often only quarterly or yearly. Why?Rewind 60 years. Your average bank would keep your account on a sheet of paper and at some point in time a clerk would take your sheet of paper and calculate interest on the balance. The more often you have a clerk do this, the higher your operating costs are, so you want to do it not more often than neccesary. Very easy to understand.Nowadays your Excel Sheet can calculate interest on an hourly basis for a hundred or thousand accounts. However banks keep usually way more accounts, often millions of accounts and they need more computing power than a PC with Excel. Also the amounts will be minuscule on all but some billion dollar accounts and systems keep accounts usually with no more than 10,000 fractions of a unit. Sure it is theoretically possible to keep Hard- and Software to do this for millions of accounts in nanosecond increments with sufficient digits, but while your PC at home is “around anyway” such systems are not. Setting this up would be extremely costly, in fact it may be easily costly enough to facilitate the calculation in that no interest can be paid anymore, actually they’d probably have to charge you.So we know, it would be possible, so would it be at all sensible? Obviously the nanoseconds don’t make much sense, the calculation would be redone more quickly than the account holder could look at his statements. So let’s talk minute increments: Still, what would you gain from recalculating every minute? A day may be a more reasonable increment, but still why do you need to increase the required computing power by 30 or 90 times compared to a monthly or quarterly calculation?When you now want to argue that more frequent compounding will give you more interest income, please go back to your algebra class. There is a measure called “effective interest rate” that normalizes the compounding effect. Someone may advertise more frequent compounding, someone else may do it less often, but offer more nominal interest, you will need this measure to judge what’s the better deal. So in reality the increment of compounding periods is mostly a question of practicability, anyone who can be baited by believing more frequent compounding is better without looking at the effective interest rate is financially illiterate. Some people are, but don’t be one of them!

$2000 * 1.03^6 = $2388.10Hopefully this is not some kind of trick question? If the system is designed to drop sub-cents, than the answer would be $2388.09

If you invest $2,100, you will have $7,595 after 19  years assuming a return of 5% annually. The power of compounding works best over longer periods. If you invested for 30 years, it will be worth $15,986. If you invested for 40 years, you will have $31,446. Millionaires: How Anyone Can Become A Millionaire

Before attempting to answer the query we should know what ‘SI’ and ‘CI’ means;SI stands for simple interest and interest is calculated on the eligible amount for a specific period at a specific rate;The interest so computed is credited into the account of the depositor;And if the customer retains the interest along with the balance in the account, this amount (earlier balance + credited interest) becomes the eligible amount for interest in the next period;what is happening here is the interest on the balance in the previous period, becomes eligible for interest in the next period;that the method by which interest gets earned on interest; this is called Compound Interest;Technically speaking CI is a misnomer; because we are only computing interest on the outstanding balances for each successive period; when the interest is not withdrawn,k the interest amount too earns an interest;For example:the banks pay interest every half-year using an algorithm for arriving at the eligible amount (the minimum balance between 10th and the last date of the month) for each month; accumulates the eligible amount for interest at the end of the 6 month period; applies the same formula we have been learning from 4th standard — (PNR/100)the computed interest gets credited to the account; and if the customer does not withdraw the interest amount and also any other amount from the account; the account shows an enhanced balance;when the interest is required to be computed for the next half year, the original amount + credited interest becomes the reckoning balance for the next interest-period; the same algo is applied to arrive at the eligible balance and interest is computed on the same formula of (PNR/100);here because the interest credited in the earlier period, becomes eligible for interest computation in the next period;this is more clear in the case of term deposits, where interest is paid at maturity;SO CI is a myth; it is only SI that is credited over the period; we are made to believe that Bank is paying us a higher interest through something called ‘compound interest’;we are being fooled by the banks; do we remember that as a child we were scared of multiplication tables and division sums, till somebody clarified to us that , division is continuous subtraction and multiplication is a repeated additions;therefore CI is continuous application of SI on SI;