Differential equations interest probelm

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SUMMARY

The discussion centers on solving a differential equation related to two individuals, P1 and P2, who make annual deposits of 2000 euros into their bank accounts at different ages, 25 and 35, respectively. The problem requires calculating the account balances at age 65 with an interest rate of 8% and determining the interest rate needed for the balances to be equal. The solution involves using the formula for continuous interest, S_r(t) = S_0e^{rt}, and incorporating the constant deposits into the differential equation. The final expression for the balance is proposed as S(t) = e^{rt} + 2000rt + 2000t.

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  • Understanding of differential equations and their applications
  • Familiarity with continuous interest formulas
  • Knowledge of basic financial mathematics, including annuities
  • Proficiency in calculus, particularly integration techniques
NEXT STEPS
  • Study the derivation of the continuous interest formula S_r(t) = S_0e^{rt}
  • Learn how to formulate and solve differential equations involving constant rates of change
  • Explore the concept of annuities and their impact on investment growth
  • Investigate methods for equating balances in financial scenarios with varying interest rates
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Homework Statement


Two same aged people P1,P2 create bank accounts at ages 25,35 respectively, and add 2000 euros annualy , for 10,30 years respectively. No initial capital in the accounts.

1.For interest 8% , what's the balance of each acount at age of 65 of P1,P2?
2.What should be the interest for the above balances to be equal

The Attempt at a Solution


I guess continuous interest is assumed.

The problem here is the constant 2000/year.
The interest r affects the balance in the form of
S_r(t) = S_0e^{rt} , while the constant deposits S_{c0}(t) = S_{c0} + 2000t

edit : To the result of the bank's interest over a year, 2000 is added and the total is considered the balance for the application of interest at the next year.
Does it hold to say:
\frac{dS}{dt} = (2000+S)r \iff S(t) = S_0 e^{rt} + 2000rt ?

Do i have to combine them somehow / write the relation as a DE and find the solution?
hints?
 
Last edited:
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I think i got it:
<br /> S(t) = e^{rt}+2000rt+2000t<br />
 

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