Question

A savings account with $1,000 has no other

deposits or withdrawals made. The account earns
2.5% annual interest t years after the $1,000 was
deposited. The function f(t) = 1,000(1.025)* can
be used to represent the balance, in dollars, in
the savings account.
Which amount is closest to f(5), the balance, in
dollars, in the account at the end of 5 years?

A 5,125
B 5,000
C 1,362
D 1,131
E 1,064

Answer 1

A = P (1 + i)^n where the principal P equals amount A after n periods

P = 1000 and i = .025 / yr

A1 = A (1.025) = 1025

A2 = A1 (1.025) = A (1.025)^2 etc

A5 = A (1.025)^5 = 1000 * (1.025)^5 = 1131 after 5 years