Question

Nina opened a savings account and deposited $300.00. The account earns 4% interest, compounded monthly. 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

turn 4% into a decimal by dividing it by 100
4/100=0.04
0.04times300=$12 in interest
12months times 3yrs=36 months
36times$12=$432

nina will be able to spend $432 on the bike

Answer 2

up to $338.18

Explanation:

Use the compound amount formula:

A = P(1 + r/n)^(n*t), where r is the interest rate as a decimal fraction and n is the number of compounding periods per year.

Here, A = $300(1 + 0.04/12)^(12*3), or

A = $300(1.0033333)^*36, or

A = $300(1.127) = $338.18

Nina will be able to spend up to $338.18 on a new bike.