Problema Solution
If an amount of money, called principle, p, is deposited into an account that earns interest at a rate r, compound annually, then in two years that investment will grow to an amount A, given by the formula A=P(1+r)^2. If a principle amount of $6000 grows to $7260.00 in two years, what is the interest rate?
Answer provided by our tutors
Let A = 7260, P = 6000
To find out the interest rate, we substitute the two numbers into the given equation:
7260 = 6000 (1+r%)^2
7260/6000 = 6000/6000 (1+r%)^2
1.21 = (1 + r%)^2
sqroot 1.21 = (1 + r%)
1.1 - 1 = 1 - 1 + r%
0.1 = r% (r/100)
r = 10
Therefore the interest rate is 10%
Checking:
Amount after first year with interest:
6000 (1+10%)
=$6600
Amount after second year with interest:
6600 (1+10%)
=$7260