Part A
Study the two functions shown, A(t) and 12∙J(t). Based on the graph and the data, what kinds of functions are they? Choose among linear, quadratic, and exponential. Describe the features of each function that gave you clues.







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Part B
The equation A = Pert describes a bank loan that compounds continuously. The variables in the equation are described in the table:

Variable Definition
A This is the principal and interest on the loan. Principal is the amount of money borrowed. Interest is a graduated fee paid to the bank for the privilege of borrowing its money.
P This is the principal, or the amount of money borrowed. Don’t confuse P in the compounding interest equation with P in the profit equation. One is principal, the other is profit.
e This is Euler’s number, e ≈ 2.7, used in exponential functions that are continuously compounding.
r This is the interest rate expressed as a percentage.
t This is the time allotted, in years, to repay the loan. It’s also called the life of the loan.
For the sake of this activity, assume that you will collect profit from sales for a number of months and then use a portion of that profit to pay off the entire loan in one lump-sum payment once the loan terminates. Based on this assumption, what does the intersection of the 12∙J(t) curve and the A(t) curve represent? Explain using your own words.






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Part C
Take some time to gradually increase P in increments of $100,000 while keeping r and J(t) constant. What happens to the relationship between the two curves? What does this mean with respect to the bank loan? Why is this a dangerous situation with respect to the financial health of your business? Why would banks put safeguards in place to prevent this from occurring?







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