We want to create a real-life reasonable problem in which we can apply the laws of exponents.
Using a compound interest example;
Word Problem:
Calculate the final value of a $2,000 investment in an account with a 5% interest compounded Quarterly for 5 years.
Solving the word problem;
We have the following parameters;
[tex]\begin{gathered} \text{ Principal P = \$2,000} \\ \text{Rate r = 5\%} \\ \text{Time t = 5 years} \\ \text{ Number of times compounded n = 4} \end{gathered}[/tex]
Recall that the formula for compound interest is;
[tex]F=P(1+\frac{r}{n})^{nt}[/tex]
Substituting the given values;
[tex]\begin{gathered} F=2000(1+\frac{0.05}{4})^{4(5)} \\ F=2000(1+0.0125)^{20} \\ F=2000(1.0125)^{20} \\ F=2000\times(1.0125)^{20} \\ F=\text{ \$2,564.07} \end{gathered}[/tex]
Therefore, the solution to the problem is;
The final
