Question

Grace deposits $1000 in a mutual fund earning 9.25% annual interest, compounded monthly. Write an exponential function that models this situation where y is the amount of Grace's investment and x is time in years.

Answer 1

First, we calculate for the effective interest given the annual interest and the condition that it is compounded monthly.

Ieff = (1 + 0.0925/12)^12 – 1 = 0.09652

The equation that would best represent the value of Grace’s money after x years is equal to,

An = ($1000)(1.09652)^x

Where x is the number of years