Brooke opened a savings account and deposited 700.00. The account earns 5% interest, compounded monthly. 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

B roo k e 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 700.00. T h e a cco u n t e a r n s 5% 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 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 : 773.46

Solution steps

Translate the problem into an equation:

A = 700 (1 + \frac{0.05}{12})^{12 \cdot 2}

700 (1 + \frac{0.05}{12})^{12 \cdot 2} = 773.45893 \dots

Round to the nearest hundredth:

773.46

Amount : 773.46