Madelyn opened a savings account and deposited 1,000.00. The account earns 6% interest, compounded quarterly. If she wants to use the money to buy a new bicycle in 2 years, how much will she be able to spend on the bike?

Solution

M a d e l y 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 1, 000.00. T h e a cco u n t e a r n s 6% in t eres t, co m p o u n d e d q u a r t er l y . I f s 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 s h e b e ab l e t o s p e n d o n t h e bik e ?

Amount : 1126.49

Solution steps

Translate the problem into an equation:

A = 1000 (1 + \frac{0.06}{4})^{4 \cdot 2}

1000 (1 + \frac{0.06}{4})^{4 \cdot 2} = 1126.49258 \dots

Round to the nearest hundredth:

1126.49

Amount : 1126.49