Question

Miguel opened a savings account and deposited 500.00 the account earns 11%interest compounded annually if he wants to use the money to buy a new bicycle in 2 years how much will he be able to spend on the bike

Answer 1

the compound interest formula is

$\begin{gathered} I=P(1+\frac{r}{n})^{n\cdot t} \\ \end{gathered}$

where P is the principal, r the rate, n the compounding frequency, t the time and I the interest.

In this case,

$\begin{gathered} P=500 \\ r=0.11 \\ t=2\text{ (years)} \\ n=1\text{ (compoud annually)} \end{gathered}$

by substituying those values into the formula, we have

$\begin{gathered} I=(500)(1+\frac{0.11}{1})^{1\cdot2} \\ I=500(1.11)^2 \\ I=500(1.2321) \\ I=616.05 \end{gathered}$

Therefore, in 2 years, Miguel will have 616.05 dollars.