Question

At the beginning of year 1, Jonah invests $300 at an annual compoundinterest rate of 4%. He makes no deposits to or withdrawals from theaccount.Which explicit formula can be used to find the account's balance at thebeginning of year 6?

Answer 1

The formula for compound interest is

A = P (1 + r/n) ^ ( nt) where A is the amount in the account

P is the amount invested

r = rate in decimal form

n is the number of times compounded per year

t is the number of years

The beginning of year 6 is the end of year 5, since the interest has not been compounded yet for year 6

A(t) =300 ( 1+.04/1) ^(5*1)

= 300 ( 1+.04) ^ 5

Solution: 300 ( 1+.04) ^ 5