Final answer:
Lola's compound interest formula shows she started with $500, affirming the power of compound interest in increasing savings over time. This principle is significant for long-term growth of investments and saving from an early age.
Step-by-step explanation:
Lola's savings, S, grow according to the equation S=500(1.01)^t, where t is the number of years since she opened her savings account. This equation represents the application of compound interest to her initial savings amount. Given the formula, the statement that Lola started with $500 in savings is true, as the principal value in the equation is 500, indicating her initial deposit.
Compound interest is a powerful financial principle where interest earned is added to the principal, so that from that moment on, interest is earned on the increased principal.
This compounding effect can lead to significant growth of savings over time, and the earlier one starts to save, the more one can benefit from this principle. Lola's savings plan illustrates the benefits of compounding, with a regular annual growth rate of 1% on the initial deposit.
The concept of compound interest is crucial not only for personal savings but also for investments and retirement planning. For example, if someone starts to save early with a consistent rate of return, their savings can grow exponentially. This underlines the importance of saving money early and understanding the impact of interest rates on savings and investments.