Toby and Bonnie deposit 10,000.00 into a savings account which earns 1% interest compounded monthly. 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? round to the nearest cent

Solution

T o b y an d B o nni e d e p os i t 10, 000.00 in t o a s a v in g s a cco u n t w hi c h e a r n s 1% 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 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 ? ro u n d t o t h e n e a res t ce n t

Amount : 10201.93

Solution steps

Translate the problem into an equation:

A = 10000 (1 + \frac{0.01}{12})^{12 \cdot 2}

10000 (1 + \frac{0.01}{12})^{12 \cdot 2} = 10201.92843 \dots

Round to the nearest hundredth:

10201.93

Amount : 10201.93