Ethan and Camille deposit 800.00 into a savings account which earns 4% interest compounded annually. 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?

Solution

Et han an d C ami ll e d e p os i t 800.00 in t o a s a v in g s a cco u n t w hi c h e a r n s 4% in t eres t co m p o u n d e d ann u a ll y . T h ey w an t t o u se t h e m o n ey in t h e a cco u n t t o g o o n a t r i p in 2 ye a rs . Ho w m u c h w i ll t h ey b e ab l e t o s p e n d ?

Amount : 865.28

Solution steps

Translate the problem into an equation:

A = 800 (1 + \frac{0.04}{1})^{1 \cdot 2}

800 (1 + \frac{0.04}{1})^{1 \cdot 2} = 865.28

Amount : 865.28