SATMathematics Practice Test 1

The initial deposit earns 2 percent interest compounded annually.
Thus at the end of 1 year, the new value of the account is the initial deposit of 100 plus 2 percent of the initial deposit: 100+

2

100

(100)=100(1.02).
Since the interest is compounded annually, the value at the end of each succeeding year is the sum of the previous year’s value plus 2 percent of the previous year’s value.
This is again equivalent to multiplying the previous year’s value by 1.02.
Thus, after 2 years, the value will be 100(1.02)(1.02)=100(1.02)2 after 3 years, the value will be 100(1.02)3; and after t years, the value will be 100(1.02)t.
Therefore, in the formula for the value for Jessica’s account after t years, 100(x)t, the value of x must be 1.02.