Question

I applied for a new credit card that gave me a $1000 balance and an interest rate of 5%, compounded continuously, for 4 years. What formula should I use to see how much I would spend if I used the money right away?

Option 1: No answer text provided.
Option 2: A = Pert (Correct)
Option 3: A = P(1+r)
Option 4: A = P(1-3)

Answer 1

The formula to calculate the total future amount when using a credit card with a given balance, interest rate, and time period is A = Pert, where P is the principal, e is Euler's number, r is the interest rate, and t is the time period. In this case, the student applied for a credit card with a $1000 balance, 5% interest rate, and 4-year time period. Plugging in the values, the student would spend approximately $1221.40 if they used the money right away.

Step-by-step explanation:

The formula that you should use to calculate the total future amount if you used the credit card right away is A = Pert. A represents the total future amount, P represents the principal or initial balance, e represents Euler's number (approximately 2.718), r represents the interest rate, and t represents the time period in years. In this case, you have a $1000 balance, an interest rate of 5%, and a time period of 4 years. Plugging in these values into the formula, it would be:

A = 1000 * e^(0.05 * 4) = 1000 * e^(0.20) = 1000 * 1.22140 = 1221.40

Therefore, you would spend approximately $1221.40 if you used the money right away.