Chloe opened a savings account and deposited 400.00. The account earns 10% interest, compounded monthly. If she wants to use the money to buy a new bicycle in 3 years, how much will she be able to spend on the bike?

Solution

C h l oe 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 10% in t eres t, co m p o u n d e d m o n t h 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 3 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 : 539.27

Solution steps

Translate the problem into an equation:

A = 400 (1 + \frac{0.1}{12})^{12 \cdot 3}

400 (1 + \frac{0.1}{12})^{12 \cdot 3} = 539.27273 \dots

Round to the nearest hundredth:

539.27

Amount : 539.27