Number 4

3 marks · Easy

Layla invests $400 at 5% compound interest per year.

(a)

Write down the multiplying factor for a 5% annual increase.

[1 mark]

(b)

Calculate the value of her investment after 2 years. Give your answer to the nearest dollar.

[2 marks]

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(a) 1.05

(b) 441 $

Common mistakes: Simple (non-compound) calculation; Incorrect multiplying factor

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Marking points

B1 (a) · 1 mark · Multiplying factor as 1.05 for a 5% increase.

M1 (b) · 1 mark · Attempts $400 × (1.05)^2 or equivalent correct process.

A1 (b) · 1 mark · Correct final value ($441) to nearest dollar.

Worked solution

a) The multiplying factor is 1 + 5/100 = 1.05

b) Value after 2 years = $400 × 1.05 × 1.05 = $400 × (1.05)² = $441 (to nearest dollar)