Question

Determine what type of model best fits the given situation: principal p is invested at an annual interest of rate r, compounded k times a year for t years.

1. The most appropriate model for a given situation is exponential.

### What is compound interest?

• The interest you earn on interest is known as compound interest.
• Compound interest is a use of exponential functions. A specific sum is added to the account balance each time money is invested (or lent out). Interest is the amount of money that is added to the balance. The sum will continue to accrue interest after that interest has been added during the subsequent compounding period.
• In the settings of investments and savings, compound interest is used. A = P(1 + RT) is the formula for simple interest. The next section contains a definition of the variables. This indicates that the account value is the sum of the initial investment amount multiplied by one and the rate multiplied by the time.
The most appropriate model for a given situation is exponential.