Question

Some investments in the stock market have earned 10% annually. At this rate, earning can be found using the formula A=p(1.10)n, where A is the total value of the investment, P is the initial value of the investment, and n is the number of years the money is invested. If $2,500 is invested in the stock market at this annual rate of return, what is the expected total value after 18 years?

a. 49,500.00
b. 46,750.00
c. 13.899.79
d. 12,636.18

Answer 1

c. 13.899.79

Explanation:

Exponential function

Two variables y and x have an exponential relation if

`y=Ce^(kx)`

where C and k are real numbers. Many natural phenomena are modeled by using exponentials, finance included, where the growing of the investments can be computed through the use of the exponential function

The situation described in the question is modeled as

`A=p1.1^(n)`

being A is the total value of the investment, p is the initial value of the investment, and n is the number of years the money is invested. We know p=2,500 and n=18, so we compute A

`A=(2,500)1.1^(18)`

`A=$13,899.79`

Answer: c. 13.899.79