Question

If you have a savings account, contact your bank and find out the interest rate on that account. (If you don’t have your own account, contact a local bank to ask what the interest rate would be if you set up a savings account today.)
a. State the interest rate the bank quoted.
b. Write an exponential growth equation that models the yearly growth if you put $625 in the account and left it there for years.
c. What will be the value of the account in 25 years?
d. Which of the following would result in more money: $625 deposited in your bank at the current interest rate for 6 years, or deposit $625 into a money market account with a 5% rate for 1 year? Show how you determined your answer.

Answer 1

Deposit $625 into a money market account with a 5% rate for 1 year would result in more money.

The interest rate of the bank

To do this, we make use of 1.50% interest rate

The exponential growth equation

Here, we have:

Initial, a= 625

Rate, r = 1.5%

The exponential growth equation is

A(t) = a * (1 + r)^t

So, we have:

A(t) = 625 * (1 + 1.5%)^t

Evaluate

A(t) = 625 * 1.015^t

Hence, the exponential growth equation is A(t) = 625 * 1.015^t

The value in 25 years

Here, t = 25.

So, we have:

A(25) = 625 * 1.015^25

Evaluate

A(25) = 906.84

Hence, the value in 25 years is $906.84

The investment with more money

#Investment A

a = 625

r = 1.5%

t = 5

So, we have:

A(5) = 625 * 1.015^5

Evaluate

A(5) = 673.3

#Investment B

a = 625

r = 5%

t = 1

So, we have:

A(1) = 625 * 1.5^1

Evaluate

A(1) = 937.5

By comparison, 937.5 is greater than 673.3

Hence, deposit $625 into a money market account with a 5% rate for 1 year would result in more money.

Read more about exponential growth equation at:

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