Sam and Cara deposit 500.00 into a savings account which earns 12% interest compounded monthly. They want to use the money in the account to go on a trip in 3 years. How much will they be able to spend?

Solution

S am an d C a r a d e p os i t 500.00 in t o a s a v in g s a cco u n t w hi c h e a r n s 12% in t eres t co m p o u n d e d m o n t h l 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 3 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 : 715.38

Solution steps

Translate the problem into an equation:

A = 500 (1 + \frac{0.12}{12})^{12 \cdot 3}

500 (1 + \frac{0.12}{12})^{12 \cdot 3} = 715.38439 \dots

Round to the nearest hundredth:

715.38

Amount : 715.38