Question

At the beginning of year 1, Paolo invests $500 at an annual compound

interest rate of 4%. He makes no deposits to or withdrawals from the
account.
Which explicit formula can be used to find the account's balance at the
beginning of year 5? What is the balance?

Answer 1

b

Explanation:

Answer 2

see below

Explanation:

The way the problem is worded, we expect "n" to represent the year number we're at the beginning of. That is the initial balance is that when n=1, and the balance at the beginning of year 5 (after interest accrues for 4 years) is the value of obtained when n=5.

After compounding interest for 4 years, the balance will be ...

500·1.04^4 = 584.93

The matching answer choice is shown below.