Mason opened a savings account and deposited 400.00. The account earns 9% interest, compounded quarterly. If he wants to use the money to buy a new bicycle in 2 years, how much will he be able to spend on the bike?

Solution

M a so n o p e n e d a s a v in g s a cco u n t an d d e p os i t e d 400.00. T h e a cco u n t e a r n s 9% in t eres t, co m p o u n d e d q u a r t er l y . I f h e w an t s t o u se t h e m o n ey t o b u y a n e w bi cyc l e in 2 ye a rs, h o w m u c h w i ll h e b e ab l e t o s p e n d o n t h e bik e ?

Amount : 477.93

Solution steps

Translate the problem into an equation:

A = 400 (1 + \frac{0.09}{4})^{4 \cdot 2}

400 (1 + \frac{0.09}{4})^{4 \cdot 2} = 477.93245 \dots

Round to the nearest hundredth:

477.93

Amount : 477.93