Explanation of how the model was created:

We know that an exponential model follows the formula:

P ( t ) =P 0 ( 1+r )t

Where:

P0 is the initial value

t is time
r is the rate of growth or decay
P ( t ) is the value at time t

If we were to model this as a problem for compound interest (which we know to be an exponential
function), it will follow exactly the same formula as above but this time we will just rename the
variables. Let’s say we are investing a certain amount of money in the bank

 We can call the initial value of the exponential function as the initial balance in the account P
 We will call the final value in the account the future value of money FV at after a certain time
 We will call the rate of growth to be the annual interest rate i that the bank has stated
 We will state time t as the number of years that has elapsed.

Therefore, we will have the following equation:

t
FV =P ( 1+ i )
For this equation, we know the domain (this is the possible values of the initial balance P) to be:

domain=[0 ,+∞]
*Take note that we cannot invest a negative amount of money, hence the possible values of the initial
balance is any positive number

Similarly, the range (possible values for the future values of money) is:

range=[0 ,+ ∞]
*Logically, we know that if we place money into a bank, it will only grow over time. Therefore, the
possible future value of the money invested will only be positive values.
Let’s give a particular scenario that we can use in our everyday life. For example, you are planning to
save enough money to buy a car that is worth $51,880. The bank has offered an annual interest rate of
6%. With this, you can determine the principal amount (initial balance) that you need to place into your
account for you to be able to save enough money to buy a car after 5 years.

FV =$ 51,880
r =6 %=0.06
t =5
5
$ 51,880=P ( 1+0.06 )
P=$ 38,767.75
Another way that we can use this model is to determine the amount of money that we will have after a
certain number of years. Let’s say that you have invested $5,000 into your bank account, and the
account has an annual interest rate of 6%. Therefore, the model will be:
t
FV =5000 ( 1+0.06 )
If we were to make a table for the future value of money at different values of t:

t (years) FV
1 $ 5,300.00
2 $ 5,618.00
3 $ 5,955.08
4 $ 6,312.38
5 $ 6,691.13
6 $ 7,092.60
7 $ 7,518.15
8 $ 7,969.24
9 $ 8,447.39
10 $ 8,954.24

Essentially, the model will help us determine how much money we will have in our bank account after a
certain time has passed. This model is extremely useful since it helps in planning for future budgeting
and expenses. It is something that every person should know since money is important in society.