Question

Maria invests $1000 in a savings account that pays 4% interest compounded annually. Write an exponential equation to find the value of the account, A, at the end of five years.

Answer 1

A = 1000·1.04^5

Explanation:

When 4% of the amount in the account is added to the amount in the account, the result is that amount is multiplied by 1.04:

amount + 0.04×amount = amount×(1 + .04) = 1.04×amount

The account is multiplied this way for each of 5 years. An exponent is used to signify repeated multiplication, so we can write the account balance as ...

A = ((((1000×1.04)×1.04)×1.04)×1.04)×1.04 = 1000×1.04^5