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Use the following formula for compound interest. If P dollars is invested at an annual interest rate r (expressed as a decimal) compounded n
Question
Use the following formula for compound interest. If P dollars is invested at an annual interest rate r (expressed as a decimal) compounded n times yearly, the amount A after t years is given by
A= P(1+ r/n)^nt
Required:
What rate of interest is required so that $1000 will yield $1900 after 5 years if the interest rate is compounded monthly?
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Mathematics
3 years
2021-08-18T16:11:02+00:00
2021-08-18T16:11:02+00:00 1 Answers
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Answer:
12.906%/year
Step-by-step explanation:
Given data
Principal= $1000
Final Amount= $1900
Time= 5 years
The compound interest formula is given as
A= P(1+ r/n)^nt
Solving for rate r as a decimal
r = n[(A/P)1/nt – 1]
r = 12 × [(1,900.00/1,000.00)1/(12)(5) – 1]
r = 0.12906
Then convert r to R as a percentage
R = r * 100
R = 0.12906 * 100
R = 12.906%/year