Solving Continuously Compounded Interest Problems with the PERT Formula

The Organic Chemistry Tutor

This math tutorial provides a clear, step-by-step guide on how to solve word problems involving continuously compounded interest. The video introduces the continuous compound interest formula, A = Pe^rt (often referred to as the "PERT" formula), and explains the significance of each variable: the future value (A), principal investment (P), Euler's number (e), interest rate (r), and time (t). Through two distinct examples, the narrator demonstrates how to calculate the future value of an investment and how to determine the time required for an investment to double in value. Key mathematical themes include exponential growth functions, algebraic manipulation of formulas, and the application of natural logarithms (ln) to solve for unknown variables in an exponent. The video carefully walks through the algebraic steps required to isolate the time variable 't' by taking the natural log of both sides, reinforcing the inverse relationship between exponential and logarithmic functions. Additionally, the video introduces the "Rule of 72," a mental math shortcut for estimating doubling time, and compares this approximation with the precise calculated result. This video is highly valuable for high school Algebra II, Pre-Calculus, and Financial Math classrooms. It bridges the gap between abstract algebraic concepts—like the number 'e' and logarithms—and practical financial literacy. Teachers can use this resource to scaffold lessons on exponential modeling, demonstrate the utility of logarithms in real-world scenarios, or introduce students to basic investment planning and the power of compound interest over time.