Question

Which of the following formulas shows how to calculate the ending balance of an account with a beginning balance of $600 that earns 3.5% compound interest over 8 years?

Answer 1

`A(t) = 600(1.035)^8`

The ending balance is of $790.1.

Explanation:

Compound interest:

The amount of money earned after t years, in compound interest, is given by:

`A(t) = A(0)(1+r)^(t)`

In which A(0) is the initial amount of money and r is the interest rate, as a decimal.

$600 that earns 3.5% compound interest over 8 years

This means, respectively, that:

`A(0) = 600, r = 0.035, t = 8`

So, the formula is:

`A(t) = A(0)(1+r)^(t)`

`A(t) = 600(1+0.035)^(8)`

`A(t) = 600(1.035)^8`

Ending balance:

The ending balance is:

`A(t) = 600(1.035)^8 = 790.1`

The ending balance is of $790.1.