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An investor puts $750 into an account that pays 4% interest compounded annually. The total amount A in the account after t years is given by which function below?
A = 750(1.04)t
A = 750(1.04)^t
A = 750(104)^t
A = 750 + (1.04)^t

Question

I will fan and medal
An investor puts $750 into an account that pays 4% interest compounded annually. The total amount A in the account after t years is given by which function below?
A = 750(1.04)t
A = 750(1.04)^t
A = 750(104)^t
A = 750 + (1.04)^t

anonymous · Answer

The second option is correct. A simple substitution will help you check this, for example checking the case for year one and year two.

It is important that you understand the 'power of' concept for the compounding interest, because the interest from year one becomes part of the principal that also earns interest in year two and the other years that follow.