Adriana opens a savings account with an initial deposit of $1000. The annual rate is 6%, compounded continuously. Adriana pledges that each year her annual deposit will exceed that of the previous year by $500. How much will be in the account at the end of the tenth year?
Discrete versus continuous You may have cast a somewhat skeptical eye at our financial models involving continuous compounding of interest. After all, no one pays off their loans continuously. It would be difficult to imagine how that could be accomplished. Payments are made at regular intervals, perhaps yearly, but more likely monthly. Let’s examine how accurately our continuous models reflect the real world of finance.
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