Question

Zack opened a savings account and deposited 100.00 the account earns 10% interest compounded quarterly if he wants to use the money to buy a new bicycle in 2 years how much will he able to spend on the bike

Answer 1

Given information:

Deposit amount = P = $100

Interest rate = r = 10% = 0.10

Compounding interval = n = quarterly = 4

Number of years = t = 2

Solution:

Recall that the compound interest formula is given by

`A=P(1+(r)/(n))^(n\cdot t)`

Where

A = Accumulated amount (or ending balance)

P = Principle amount (or deposit amount)

r = Interest rate in decimal

n = Number of compounding in a year

t = Number of years

Now let us substitute the given values into the above formula

`\begin{gathered} A=100\cdot(1+(0.10)/(4))^(4\cdot2) \\ A=100\cdot(1+0.025)^8 \\ A=100\cdot(1.025)^8 \\ A=100\cdot(1.2184) \\ A=\$121.84 \end{gathered}`

Therefore, Zack will be able to spend $121.84 on the bike.