Question

At the beginning of year 1, Sam invests 700 at an annual compound interest rate of 5%, he makes no deposits to or withdrawals from the account. which explicit formula can be used to find the account's balance at the beginning of year 4? what is the balance?

a) 805.
b) 825.42
c) 850.85
d) 810.34

Answer 1

(d) 810.34

Explanation:

The explicit formula used for calculating the account's balance is given by:

A= P(1+R)^T

where: A= Amount (account's balance)

P= Principal (700)

R= Rate (5%)

T= Time (3 years) [since, the balance is calculated in the beginning of the forth year]

A= P(1+R)^T

A = 700(1+0.05)^3

= 700(1.05)^3

= 700*1.157

= 810.34