Write an Explicit Formula

Question

The question reads, "increases by 5% per year with a starting amount of $5000. Write an explicit formula to describe my investment"

Answer 1

Hello, Athan,

The formula for calculating the accumulated value, A, value of an initial investment,P, for time, t, with an interest rate of r, and compunded each period, n, is:

A = P(1 + r/n)^nt

From your "increases by 5% per year with a starting amount of $5000," I'll assume the increase in investment value is added to the account once a year (n=1 year) and the other values are assigned as per the table:

:

As an example, the value, A, after 10 years is:

A = 5000*(1+(.05/1)¹⁰

A = $8144.50

Bob