Question

Fedora invests $100. For the first year, the rate is 3%. The next year, the interest rate goes up to 4%. Which expression describes her investment after two years ?a) 100 • 1.035b) 100 • 1.03 + 100 • 1.04c) (100 • 1.03)1.04d) 100 • 1.07

Answer 1

Fedora initial investment = $100

The total interest rate for both years = 3%+4% = 7%

Using the formula for calculating the compound interest as shown;

A = P(1+r)^t

r is the rate

t is the time

Given

P = $100

r = 7% = 0.07

t = 1 year

Substitute

A = 100(1+0.07)^1

A = 100(1.07)

Hence the expression that describes her investment after two years is 100(1.07). Option D is correct