One of Krista’s classmates, Steven, has also been saving. His parents opened a compound interest account for him when he was a baby. They made an initial investment of 500 and the account had a 2.5% interest rate. How much more money does Steven have in his account than Krista has in her account, after 18 years?

Solution

O n e o f Kr i s t a ’ s c l a ss ma t es, St e v e n, ha s a l so b ee n s a v in g . H i s p a re n t s o p e n e d a co m p o u n d in t eres t a cco u n t f or him w h e n h e w a s a bab y . T h ey ma d e an ini t ia l in v es t m e n t o f 500 an d t h e a cco u n t ha d a 2.5% in t eres t r a t e . Ho w m u c h m ore m o n ey d oes St e v e n ha v e in hi s a cco u n t t han Kr i s t a ha s in h er a cco u n t, a f t er 18 ye a rs ?

Amount : 779.83

Solution steps

Translate the problem into an equation:

A = 500 (1 + \frac{0.025}{1})^{1 \cdot 18}

500 (1 + \frac{0.025}{1})^{1 \cdot 18} = 779.82935 \dots

Round to the nearest hundredth:

779.83

Amount : 779.83