AP Calculus AB Name

Differential Equations Date Period

Exploration - Differential Equation for Compound Interest

Objective: Write and solve a differential equation for the amount of money in a savings account as
a function of time.

Please do all work on a separate piece of paper.

When money is left in a savings account, it earns interest equal to a certain percent of what is
there. The more money you have there, the faster it grows. If the interest is compounded
continuously, the interest is added to the account the instant it is earned.

1. For continuously compounded interest, the instantaneous rate of change of money is

directly proportional to the amount of money. Using the variable t for time, P for money
(principal) and r for the constant of proportionality (interest rate), we can write a differential
equation expressing this fact.
dP
 rP
dt
 dP 
 
This is a “differential equation” since it has a derivative  dt  in it. We are going to use this
differential equation to achieve the objective above. To “SOLVE” a differential equation we
want to write an equation with P in terms of t, an equation that has no derivative in it. In other
words:
P

2. Separating the variables in the differential equation in Problem 1 is a simple algebraic

dP
procedure, but is key to solving differential equations. Notice that the expression dt has
both time and money involved, M and t (k is not a variable in this example). To separate
the variables, get the M’s all on one side and the t’s on the other:
1
dP  rdt
P

3. Now it’s your turn. Integrate both sides and evaluate the integrals (take the
1
antiderivatives). Solve for P . Don’t forget the absolute value when integrating the P
expression. Combine the C terms on one side and rename it as a single “C”

4. The integrated equation from Problem 3 will contain e raised to a power containing two
terms. Write this power as a product of two different powers of e, one that contains the time
variable and one that contains the constant C. (Remember the property of exponents:
a mn  a m a n )
 c c
5. You should have the expression e in your answer to Problem 3. Explain why e is always
positive.
c c
6. The expression e is still just a constant of the problem. Replace e with a new constant,
P0 . If P0 is allowed to be positive or negative, explain why you no longer need the  sign
that appeared when you removed the absolute value in Problem 3.

7. Your equation should now be:

P  P0 e rt

If it is not, go back and work through parts questions 3 – 6 and make sure you understand
how this equation was determined.

8. Suppose that the amount of money is $1000 when time equals zero. Use this initial
condition to evaluate P0 .

dP
 0.05
9. If the interest rate is 5% per year, then dt dollars per year. What, then, does the
proportionality constant in Problem 1 equal?

10. How much money will be in the account after 1 year? 5 years? 10 years? 50 years? 100
years? Do the computations in the most time-efficient manner.

11. How long would it take for the amount of money to double its initial value?

More practice!!

12. You have just run over a nail. The air leaks out of your tire, the rate of change of the air
pressure inside the tire is directly proportional to that pressure.

a. Write a differential equation that states this fact. Evaluate the proportionality
constant if, at time zero, the pressure is 35 psi and decreasing at .28 psi/min.
b. Sketch the graph of the function. Show its behavior a long time after the tire is
punctured.
c. What will the pressure be 10 min after the tire was punctured?
d. The car is safe to drive as long as the tire pressure is 12 psi or greater. For how
long after the puncture will the car be safe to drive?