Question

Toni invests money into an account which pays a fixed rate of compound interest each year. The total value, ?V, of her investment after t years is given by the formula: V = 1350 x 1.04^t Answer questions a & b a- How much money did Toni invest in pounds b- What rate of compound interest is paid each year

Answer 1

a. $ 1,350

b. 4%

Explanation:

a. Given function that shows the total value of Toni's investment after t years,

`V=1350(1.04)^t`,

Initially, ( when he invested ),

t = 0,

Thus, the invested amount =
`1350(1.04)^0` = 1350(1) = $ 1,350,

b. Since, the amount formula in compound interest,

`A=P(1+(r)/(n))^(nt)`

Where,

P = Initial amount,

r = annual rate per period,

n = number of periods per period,

t = number of years,

Here, the amount is compounded annually,

i.e. n = 1,

By the given function,

`V=(1+0.04)^t`

By comparing,

r = 0.04 = 4%

Hence, 4% interest is paid annually.