The equation B = 1400 (1.05) ^5 is being used to calculate the amount of money in a savings

account. What does 1.05 represent in this equation?

(1) 0.05% decay

(2) 0.05% growth

(3) 5% decay

(4) 5% growth

Answer: 5% growth (fourth choice)

the base of the exponent 1.05 is in the form 1+r

1+r = 1.05 which solves to r = 0.05 when we subtract 1 from both sides

Since r is positive, it represents growth.

0.05 = 5/100 = 5%