Recall our interest formulas.

Simple Interest: 𝐼 = 𝑃𝑟𝑡 𝐼 = interest

𝐴 = accumulated amount
𝑟 𝑛𝑡 𝑃 = principal
Compound Interest: 𝐴 = 𝑃 (1 + 𝑛)
𝑟 = rate
𝑡 = time (in years)
Continuous Interest: 𝐴 = 𝑃𝑒 𝑟𝑡
𝑛 = number of times the interest is compounded in a year

Your friend Nathan tells you that it is always best to invest in accounts that accumulate interest with continuous
interest. What are your initial thoughts about Nathan’s statement?

Given 𝑃 = $1000, 𝑟 = 10%, and 𝑡 = 2 𝑦𝑒𝑎𝑟𝑠, calculate interest for an account using simple interest, interest
compounded annually, semiannually, quarterly, monthly, and continuously.

After your calculations, do you currently agree or disagree with Nathan’s statement from earlier. Why?

Suppose you plan to invest $2,000 into one of two investments. Investment A has a rate of 9% and uses continuous
interest. Investment B has a rate of 9.2% and uses interest compounded monthly. Which one is the better
investment? Show your calculations.

Did your opinion of Nathan’s statement from earlier change? If so, what is your opinion now?

Which of the following two accounts would be a better investment. Investment A at 𝑟 = 6.2% compounded
continuously, or investment B at 𝑟 = 6.5%, compounded semiannually? Show your calculations.

What plays a more important factor in an investment and why, rate or compounding?

When comparing two different investment, what is important about the principal and the time?