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Kristen opened a savings account and deposited $800.00. The account earns 7% interest, compounded annually. If she wants to use the money to buy a new bicycle in 3 years, how much will she be able to spend on the bike?

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  1. Today, 11:48
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    Answer: she will be able to spend $980 on the bike.

    Step-by-step explanation:

    We would apply the formula for determining compound interest which is expressed as

    A = P (1 + r/n) ^nt

    Where

    A = total amount in the account at the end of t years

    r represents the interest rate.

    n represents the periodic interval at which it was compounded.

    P represents the principal or initial amount deposited

    From the information given,

    P = $800

    r = 7% = 7/100 = 0.07

    n = 1 because it was compounded once in a year.

    t = 3 years

    Therefore,.

    A = 800 (1 + 0.07/1) ^1 * 3

    A = 800 (1 + 0.07) ^3

    A = 800 (1.07) ^3

    A = $980
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