Anne invested $1000 in an account with a 1.3% annual intrest rate. She made no deposit or withdrawls on the account for 2 years. If intrest was compounded annually, which equation represents the balance in the account after the 2 years?

Question

1.#A=1000(1-0.013)^2#
2. #A=1000(1+0.013)^2#
3. #A=1000(1-1.3)^2#
4. #A=1000(1+1.3)^2#

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Answer 1 · 2018-04-07T15:02:11

B

The correct answer is B. When calculating compound interest, we use the formula:

#A = p(1 + r/n)^(nt)#

#p# = principle (initial deposit, in this case #p#=1000),

#r#= interest rate (in this case #r# = 0.013),

#n# = number of times compounded per year (in this case n = 1, as the deposit is compounded annually),

and #t# = time in years (in this case #t# = 2)

So our equation works out to be

#A = 1000(1 + 0.013/1)^(2*1)#

Which simplifies to

#A = 1000(1 + 0.013)^(2)#