Question

The initial balance of a mutual fund is $1800. The fund is expected to grow in value at an annual rate of 5%.

Let x represent the number of years since the fund was started. Let y represent the value of the fund x years later.

What equation models the value of the mutual fund x years after it was started?

Answer 1

y=1800*1.05^x. Since the fund grows at an annual rate of 5%, each year it will be (1+5%) or (1.05) times in value the year before. Therefore, the fund after first year will be 1800*1.05, the second year will be 1800*1.05*1.05,... after x years, the value will be 1800*(1.05)^x dollars.