Question

Jeff invests an amount at 4% interest compounded annually. After 3 years, he has $1687.30. What was the original amount Jeff invested?

$1500

$1200

$1450

$750

Answer 1

In order to determine the principal amount, remember that $1,687.30 is the principal amount plus all interest accumulated over 3 years.
:
To find the effect of 4% annual interest over 3 years, take 1.04 and raise it to the third power:
1.04³ = 1.125

Divide the final amount, 1687.30 by 1.125 to find the principal amount:
1687.30 ÷ 1.125 = ~1500
Answer is A.