Question

In a company's first year in operation, it made an annual profit of $247,500. The

profit of the company increased at a constant 16% per year each year. How much
total profit would the company make over the course of its first 10 years of operation,
to the nearest whole number?

Answer 1

To calculate this sort of problem:

⇒ involves calculating the total profits over each year

⇒ with a constant increase periodically

⇒ need to use the Compound Interest Equation

`A = P(1+(r)/(n))^(nt)`

• A: total amount after t years
• P: initial amount in account
• r: rate per period
• n: number of times the profit increases per year
• t: number of years

Let's fill in some variables:

• P: $247500
• r: 16% increase (in equation form, we plugin 0.16)
• n: 1 time per year
• t: 10 years

What do we want to know:

• A: total amount after 10 years

Let's solve:

`A= 247500*(1+(0.16)/(1) )^(1*10)=\\A=247500*(1+0.16)^(10)\\A=247500*(1.16)^(10) \\A= 1,091,830.18`

To the nearest whole number

• Answer: $1,091,830

Hope that helps!