Question

Fred deposited $1,000 into an account that earns 2 percent, compounded annually. How much money will he have in 5 years? A. $1000 B. $1100 C. $1552 D. $1291 E. $1126

Answer 1

This situation can be modeled by an exponential equations.  Exponential equations typically take the form $y=ab^{x}$.  In an interest problem, a represents the initial deposit, b is the yearly interest rate, x is the number of years, and y is the total amount of money.

Start by filling out what you know:

a: 1000

b: 1.02 (Fred will have all of the money he had before (1) plus the interest rate (2%=2/100=0.02)

x: 5

y: ?

Now, all you have to do is solve.

$y=1000(1.02)^{5}$

$y=1000(1.104)$

$y=1104$

1104-->1100

The final answer is B. $1100.