Question

At the beginning of year 1, Josie invests $400 at an annual compound interest rate of 5%. She makes no deposits to or withdrawals from the account. Which explicit formula can be used to find the account's balance at the beginning of year 3?
A. A(3) = 400 • (1 + 0.05)3 – 1
B. A(3) = 400 + (3 – 1)(0.05 • 400)
C. A(3) = 400 + (0.05 • 400)3 – 1
D. A(3) = 400 • (1 + 0.05)3

Answer 1

Answer: A

Step-by-step explanation:

Since she invested $400 in the beginning if the 1st year and we are asked to find the balance at the beginning of the third year, she earns interest only for the first two years. So, the formula will be

Amount = 400 (1 + 0.05) ^3-1