This question is quite easy, but it appears difficult if we focus too much on the formula, and the fact that it is difficult to execute 1.01^5 without a calculator. Beware of "formula tunnel vision": instead of worrying about how to calculate the answer using the interest formula, we should instead understand that a 1 percent increase is really quite easy to calculate by hand (just remove the final two digits of the original number, and then add it to the original number):
Year 1: 25,000 + 1% = 25,000 + 250 = 25,250
Year 2: 25,250 + 1% = 25,250 + 252 = 25,502
Year 3: 25,502 + 1% = 25,502 + 255 = 25,757
Year 4: 25,757 + 1% = 25,757 + 257 = 26,014
Year 5: 26,014 + 1% = 26,014 + 260 =
26,274Thus the answer is closest to
Choice A (26,000).
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