Question

When Vivian was born, her grandparents decided to help save for her college education. They put $2000 in an account that pays 1.3% annual interest, compounded quarterly. Which equation models the value of the account over time.

Answer 1

P = 2000 * (1.00325)^(t*4)

(With t in years)

Explanation:

The formula that can be used to calculated a compounded interest is:

P = Po * (1 + r/n) ^ (t*n)

Where P is the final value after t years, Po is the inicial value (Po = 2000), r is the annual interest (r = 1.3% = 0.013) and n is a value adjusted with the compound rate (in this case, it is compounded quarterly, so n = 4)

Then, we can write the equation:

P = 2000 * (1 + 0.013/4)^(t*4)

P = 2000 * (1.00325)^(t*4)