In this last section of this chapter we have to look at some applications of exponential & logarithm functions.

Compound Interest

This first application is compounding interest & there are in fact two separate formulas which we'll be looking at here. Let's get first those out of the way.

If we were to put P dollars in an account which earns interest at a rate of r (written as a decimal) for t years (yes, it have to be years) then,

1. if interest is compounded m times per year we will have t m

                                  A = P (1 + (r  /m)^tm

         dollars after t years.

2. if interest is compounded continuously then we will have

                                         A = Pe^rt

             dollars after t years.