$2500 grows by 4% a year. How much is it after 5 years?

Step by step

The question

Question: $2500 grows by 4% a year.

How much is it after 5 years?

1 Find the start and the factor

The start is $2500.

Each year it keeps all of it, 100%, and gets 4% more.

So it becomes 104% of what it was.

104% is 1.04.

That is the factor.

2 Write the rule

x is the number of years.

Each year we multiply by 1.04 again.

So y = 2500 × 1.04ˣ.

Careful!

The 4% is taken of the NEW amount every year, not always of $2500.

3 Put in x = 5

After 5 years, x = 5.

1.04 to the power 5 is 1.216653.

So we multiply 2500 by 1.216653.

That is 3041.632256.

Money is rounded to cents: about $3041.63.

4 Check

Let's check year by year.

We start at $2500, and multiply by 1.04 each year.

After 5 years we get 3041.632256 again.

It works!

Let's look back.

First: find the start and the factor.

Then: write the rule.

Then: put in x = 5.

Last: check.