Kenny and Michelle deposit $500.00 into a savings account which earns 14% interest compounded annually. They want to use the money in the account to go on a trip in 3 years. How much will they be able to spend?
Use the formula A=P1+
r
n
nt, where A is the balance (final amount), P is the principal (starting amount), r is the interest rate expressed as a decimal, n is the number of times per year that the interest is compounded, and t is the time in years.
Round your answer to the nearest cent.
In this problem, the principal (starting amount) is $500, the interest rate (r) is 14% or 0.14, the number of times per year that the interest is compounded (n) is 1 (since it is compounded annually), and the time in years (t) is 3.
Using the formula A = P(1 + r/n)^(nt), we can calculate the balance (final amount) in the savings account after 3 years.
A = 500(1 + 0.14/1)^(1*3)
A = 500(1.14)^3
A = 500(1.483812)
A = 741.91
Therefore, Kenny and Michelle will be able to spend $741.91 on their trip.