Question

Jake received $300 for his birthday. He must decide how much of it to save and how much to spend. His bank has a 5% interest rate. How much more would be in his account after 5 years if he saved $300 than if he saved $250?

Answer 1

Assuming no compounding, given an interest rate of 5%, after 5 years the $300 dollars become:

300*(1+5%)^5= $382.884469

By saving $250 instead,

250*(1.05)^5=319.07039

The difference is 382.8845-319.0704= 63.8141

Explanation:

The formula is FV=PV*(1+r%)^T

Where:

FV- future value

PV- present value

r%- interest rate

T- Time (usually in years)