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Economics Asked by a SnapAndSolve user · about 1 hour ago

Nikita invests $2,000 into a bank account with a 4% annual interest rate. In seven years, which is the most...

Nikita invests $2,000 into a bank account with a 4% annual interest rate. In seven years, which is the most expensive item she could afford to buy?
○ a beach vacation priced at $2,200
○ a home theater system priced at $3,000
○ a sectional sofa priced at $2,700
○ a mountain bike priced at $2,500

Answer

To find the future value of Nikita's investment, we use the formula:

Future Value = P × (1 + i)t

Where:

  • P = $2,000 (initial investment)
  • i = 0.04 (annual interest rate)
  • t = 7 years

Future Value = $2,000 × (1 + 0.04)7

Future Value = $2,000 × (1.04)7

Future Value ≈ $2,000 × 1.316

Future Value ≈ $2,632

Therefore, the most expensive item she could afford is the sectional sofa priced at $2,700, as it is the closest to $2,632 without exceeding it.

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