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?

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