Your friend Ming answers the following question on her quiz:

"You have worked hard at your summer jobs – and saved almost all of your earnings. After two summers, you have saved $3500. If the bank is paying 3.25%/year, compounded semi-annually. How much will your savings be worth in 5 years?"

 

Her solution was:

A0 = $3500

i = 3.25 or 0.0325

n = 5

Using the formula:

A = A0 (1+ i )^n

= 3500 ( 1 + 0.0325 )^5

= $4106.94

A	- represents the amount at a point in time
A0	- represents the starting amount
i	- represents the rate of growth or decay (as a decimal)
n	- represents the number of times the event occurs (ncan often be related to the variable t for time)

 

She receives a mark of 5/10 and asks you to explain why she lost 5 marks. In your answer make sure to:

 

a) Explain why her solution is not accurate.

b) Show what she should have done.

c) Give some general advice in answering these kind of questions.