FLASHCARD: Ch. 2.4 - 2.6 (Math for Finance)

Front

What special letter is used in the formula for continuous compounding?

Back

e

Front

What is the formula for calculating the future value of an investment that compounds continuously?

Back

A = Pe^{rt}

Front

If you want to have $1,000,000 in 6 years with a continuous compounding interest rate of 4.95%, how much do you need to deposit?

Back

$743,044.01

Front

Which type of interest earns the most over time: Simple Interest, Compound Interest, or Continuous Compound Interest?

Back

Continuous Compound Interest

Front

What is the future account balance for a principal of $5000 at an interest rate of 3.75% compounded weekly for 25 years?

Back

$12,763.63

Front

What is the formula to calculate the future value of an investment compounded quarterly?

Back

A = P(1 + \frac{r}{n})^{nt}

Front

In the formula A = P(1 + \frac{r}{n})^{nt}, what does 'n' represent?

Back

The number of times interest is compounded per year.

Front

If you deposit $10,000 at an interest rate of 4.00% compounded annually, what will be the balance after 5 years?

Back

$12,166.53

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any interest earned.

Front

How do you calculate the interest earned on an investment compounded continuously?

Back

Use the formula A = Pe^{rt} to find the total amount, then subtract the principal.