Question

Mandy opened a savings account and deposited 700.00 the account earns 1% interest compounded annually if she wants to use the money to buy a new bicycle in 3 years how much will she be able to spend on the bike

Answer 1

Notice that each year, the balance gets multiplied by a factor of:

`1+(1)/(100)`

Therefore, three years from now, the balance would get multiplied by the following quantity:

`(1+(1)/(100))^3`

If the initial balance was $700.00, then, after three years of 1% interest compounded anually, the balance will be equal to:

`\begin{gathered} 700\cdot(1+(1)/(100))^3=700\cdot1.030301 \\ =721.2107 \end{gathered}`

Therefore, after three years, Mandy will be able to spend $721.21 on the bike.