Michael opened a savings account and deposited 100.00. The account earns 8% interest, compounded quarterly. If he wants to use the money to buy a new bicycle in 3 years, how much will he be able to spend on the bike?

Solution

M i c ha e l 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 100.00. T h e a cco u n t e a r n s 8% 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 3 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 : 126.82

Solution steps

Translate the problem into an equation:

A = 100 (1 + \frac{0.08}{4})^{4 \cdot 3}

100 (1 + \frac{0.08}{4})^{4 \cdot 3} = 126.82417 \dots

Round to the nearest hundredth:

126.82

Amount : 126.82