Answer: A
Step-by-step explanation:
Since she invested $400 in the beginning if the 1st year and we are asked to find the balance at the beginning of the third year, she earns interest only for the first two years. So, the formula will be
Amount = 400 (1 + 0.05) ^3-1
To find the balance in Josie's account at the beginning of the the third year we have to use A(3)=[tex]400*(1+0.05)^{3-1}[/tex]
It is the interest calculated on the initial principal amount and the accumulated interest. The formula to calculate the sum after compound interest is
Sum= [tex]P(1+r/m)^{tm}[/tex] where P=principal, r= rate of interest, m= number of times compounded in a year, t=time
At the beginning of year 1, Josie invests $400 at an annual compound interest at the rate of 5%,then the amount at the beginning of year 3 is calculated as:
The amount in beginning of 1 year=$400
The amount at the end of the year 1=400+400*0.05=400(1+0.05)
The amount at the end of year 2=400(1+0.05)+400(1+0.05)*0.05
=[tex]400(1+0.05)^{2}[/tex]
=[tex]400(1+0.05)^{3-1}[/tex]
Hence the option A is correct which is to be used to calculate the amount in Josie's account at the beginning of year 3.
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