Question

Caleb and Rose deposit $1,000.00 into a savings account which earns 9% interestcompounded quarterly. They want to use the money in the account to go on a trip in 2 years.How much will they be able to spend?

Answer 1

Since the account is under a compounded interest, we need to apply the following expression in order to determine the final amount:

$A=P(1+\frac{r}{n})^{nt}$

Where A is the final amount, P is the initial principal, r is the interest rate, n is the number of times it get compounded in a year and t is the elapsed time.

$\begin{gathered} A=1000\cdot(1+\frac{0.09}{4})^{4\cdot2} \\ A=1000\cdot(1+0.0225)^8 \\ A=1000\cdot(1.0225)^8 \\ A=1000\cdot1.195 \\ A=1194.83 \end{gathered}$

They will be able to spend $1194.83