Question

The value of a collector’s item is expected to increase exponentially each year. The item is purchased for $500 and its value increases at a rate of 5% per year. Find the value of the item after 4 years.

$578.81
$607.75
$1687.50
$2531.25

Answer 1

Use A = P(1 + r)^t. Here A = 500(1.05)^4 = 500(1.21550625) = 607.753125 ≈ $607.75.