Problema Solution
James Purchased a bond for $1280, and eight months later he sold it for $1320. What annual rate would he have to earn in a savings account compounded monthly to earn the same money on his investment?
Answer provided by our tutors
P = $1280
A = $1320
r = ? the annual interest rate
m = 12 compounding periods per year (compounded monthly)
t = 8 months = 8/12 years = 2/3 years
n = m*t = 12*2/3 = 8 compounding periods
i = r/m = r/12 the interest rate per month
A = P(1 + i)^n
1320 = 1280(1 + r/12)^8
r = 12[(1320/1280)^(1/8) - 1]
r = 0.0462
r = 4.62% annual interest rate