This situation can be modeled by an exponential equations. Exponential equations typically take the form [tex]y=ab^{x}[/tex]. In an interest problem, a represents the initial deposit, b is the yearly interest rate, x is the number of years, and y is the total amount of money.
Start by filling out what you know:
a: 1000
b: 1.02 (Fred will have all of the money he had before (1) plus the interest rate (2%=2/100=0.02)
x: 5
y: ?
Now, all you have to do is solve.
[tex]y=1000(1.02)^{5}[/tex]
[tex]y=1000(1.104)[/tex]
[tex]y=1104[/tex]
1104-->1100
The final answer is B. $1100.
