Suppose that $1500 is invested at an interest rate of 8.5%. How much is the investment worth after 18 months if interest is compounded (a) quarterly? (b) continuously?
First of all: t = 1.5 comes from the amount of years that 18 months is. If 12 months is 1 year, 18 months is 1.5 years. You got that? A half year is 6 months, so count that up on 12 you get 18 months, so 1 + 0.5 = 1.5 years.
As t is in years you should fill in the amount of years. Suppose the question stated: ‘after 365,25 days’ then your answer for t would still be t = 1. You get this?