Thread: exponential function

A person invests $7000 at 10% interest compounded annually. Let be the value (in dollars) of the account at t years after he/she has deposited the $7000.

a. Find an equation of f.

My answer:

b. What is the base b of your model ? What does it mean in this situation?

My answer: 1.10; the account balance increases by 10% each year.

c. What is the coefficient a of ? What does it mean in this situation?

My answer: 7000; the initial amount invested was $7000.

d. What will be the account's value in 10 years? Explain why the value has more than doubled, even though the investment earned 10% for 10 years.

My answer: For the first part I got $18156. But what would be the explanation? That I don't get...

Originally Posted by mt_lapin

A person invests $7000 at 10% interest compounded annually. Let be the value (in dollars) of the account at t years after he/she has deposited the $7000.

a. Find an equation of f.

My answer:

b. What is the base b of your model ? What does it mean in this situation?

My answer: 1.10; the account balance increases by 10% each year.

c. What is the coefficient a of ? What does it mean in this situation?

My answer: 7000; the initial amount invested was $7000.

d. What will be the account's value in 10 years? Explain why the value has more than doubled, even though the investment earned 10% for 10 years.

My answer: For the first part I got $18156. But what would be the explanation? That I don't get...

Because the balance is compounded annualy you are earning interest on the interest paid in earlier years. So while the interest on the original sum over 10 years is $7000 the account balance has more than doubled because of this interest on interest.

RonL