ASSIGNMENT | Describe what the parameters A, P, r, n and t represent and give an example to show how to calculate compound interest using this formula.

All of us encounter the concept of Interest in our lives, whether it\’s the kind that we pay to banks for our cars and homes or the kind that we collect on our bank accounts.
In this week\’s Algebra Talk, we will discuss the concept of compound interest along with some formulas and examples. Please start by addressing one or more of the following topics to get the discussion going:
1-Here is the formula for compound interest: Compound Interest Formula
2-Describe what the parameters A, P, r, n and t represent and give an example to show how to calculate compound interest using this formula.
The \”Present Value\” of a compound interest account is the amount of money you need to invest in the account today to accumulate A dollars. You can calculate Present Value by solving for P in the compound interest formula above. Calculate the Present Value (what you would need to invest) if you wanted to accumulate $10,000 by investing in an account for 8 years that pays 6% interest compounded monthly. If you\’d like, pose some other Present Value problems for the class to solve.
3-As the number of times you compound the interest per year increases, the interest also increases. However, it will never be greater than the following formula for \”continuous\” compound interest: Continuously Compounding Interest
Use the compound interest formula and the continuous compound interest formula to answer the following question: You just won $150,000 in the lottery and you decide to invest the money for 20 years to save for your retirement. However, you only get to choose one of the 4 options below. Which one would you pick and why?
A certificate of deposit paying 5.4% interest compounded annually?
A money market certificate paying 5.35% interest compounded semi-annually?
A bank account paying 5.3% interest compounded monthly?
A bank account paying 5.25% interest compounded continuously?
4-Explain step by step how to determine if two functions are inverses of each other. Provide a detailed example.
5-Give an example from real life where inverse functions are utilized. For ideas, look it up on the internet or find some examples in the textbook.
6-In your own words answer the following question – What is compound interest? What is the difference between compounded monthly and continuously?

SAMPLE SOLUTION

Compound interest is a mathematical/financial concept used to predict the future value on returns. Based on the sum of money that one invests; compound interest can be used to explore how much money one may likely accumulate using the interests earned as per the interest rate. Unlike the simple interest, compound interest is important because it ensures that the wealth that one accumulates grow at a faster rate since one can…