Q5. Compound Interest

Question

Mark puts an initial deposit of $1,000 into his bank account and earns 7% interest compounded annually. Which of the following equations gives the total dollar amount, A, in the account after t years?

A) A = 1,000(1.07)^t

B) A = 1,000(1.07t)

C) A = 1,000(.07t)

D) A = 1,000(.07)^t

Explanation

Formula: A = P(1+r)^t

Choice D) is correct. A = 1,000(1.07)^t

Lesson

The formula for future value of compound interest is A = P(1+r)^t

A = Future value

P = Initial deposit = 1,000

r = Interest rate

t = Time

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