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Sal invests $16,000 at age 35. He hopes the investment will be worth $320,000 when he turns 40. If the interest compounds continuously, approximately what rate of growth will he need to achieve his goal? Round to the nearest tenth of a percent.

Respuesta :

59.9%

Sorry I don’t have time to explain in the middle of an exam

The rate of growth needs to be 59.9%.

The formula used to determine the future value of an investment when interest is compounded continuously is:

FV =  A x [tex]e^{r}[/tex] x N

  • A= amount
  • e = 2.7182818
  • N = number of years
  • r = interest rate
  • FV = future value

$320,000 = $16,000 x [tex]e^{r}[/tex] x 5

Divide both sides by $16,000

20 = 5[tex]e^{r}[/tex]

Take the In of both sides

In(20) = 5r

Divide both sides by 5

r = 59.9%

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