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Question

Demetrios opens an account with an initial investment of $2000. The annual interest rate is 5%. (a) If the interest is compounded continuously and Demetrios makes an additional$1000 deposit every year, what will be the balance at the end of 10 years? (b) If the interest is compounded quarterly (four times per year) and $250 is deposited at the end of each compounding period, what will be the balance after 10 years? (c) What happens if the interest is compounded daily?

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a)\textbf{a)}

Our model\textbf{Our model}

dP(t)dt=rP(t)+D\frac{dP(t)}{dt}=rP(t)+D

P(t) balance on the bank account in moment tP(t)-\text{ balance on the bank account in moment $t$}

r=0.05 annual interest rater=0.05-\text{ annual interest rate}

D=1000$ annual depositD=1000\$-\text{ annual deposit}

Our model equation is first order linear differential equation. To $\text{solve it, we must find integration factor. μ(t).\mu (t). First define function }$

 p(t) from our model equation\text{ $p(t)$ from our model equation}

dP(t)dtrP(t)=D\frac{dP(t)}{dt}-rP(t)=D

p(t)=r\Rightarrow p(t)=-r

\Rightarrow

μ(t)=ep(t)dt=e(r)dt=ert\mu (t)=\mathrm{e}^{\int p(t)dt}=\mathrm{e}^{\int (-r)dt}=\mathrm{e}^{-rt}

Now, we multiply all equation with integration factor μ(t)\text{Now, we multiply all equation with integration factor }\mu (t)

dP(t)dtrP(t)=D/ert\frac{dP(t)}{dt}-rP(t)=D\quad\bigg/ \cdot \mathrm{e}^{-rt}

dP(t)dtertrP(t)ert=Dert\frac{dP(t)}{dt}\mathrm{e}^{-rt}-rP(t)\mathrm{e}^{-rt}=D\mathrm{e}^{-rt}

ddt(P(t)ert)=Dert\frac{d}{dt}\bigg(P(t)\mathrm{e}^{-rt} \bigg)=D\mathrm{e}^{-rt}

After integration both sides of our equation for t, we get:\text{After integration both sides of our equation for $t$, we get:}

ddt(P(t)ert)dt=Dertdt\int\frac{d}{dt}\bigg(P(t)\mathrm{e}^{-rt} \bigg)dt=\int D\mathrm{e}^{-rt}dt

P(t)ert=Drert+C,C=constP(t)\mathrm{e}^{-rt}=-\frac{D}{r}\mathrm{e}^{-rt}+C,\quad C=const

After we multiply last expression with ert we get\text{After we multiply last expression with }\mathrm{e}^{rt}\text{ we get}

P(t)=Dr+Cert()\boxed{P(t)=-\frac{D}{r}+C\mathrm{e}^{rt}}\dots (**)

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