Problema Solution
A sum of $5,000 deposited in an account grows to $7,000 in 3 years. Assuming annual compounding, what interest rate is being paid? (Give your answer correct to 1 decimal place.)
Answer provided by our tutors
P = $5,000 the principal
r = the annual interest rate that we need to find
m = 1 compounding period per year
i = r/m = r/1 = r interest rate per period
t = 3 years the number of years
n = t*m = 3*1 = 3 total number of compounding periods
A = $7,000 future value
A = P(1 + i)^n
7000 = 5000(1 + r)^3
5000(1 + r)^3 = 7000 divide both sides by 5000
(1 + r)^3 = 7/5
by solving we find
r = 0.1187
click here to see the step by step solution of the equation
0.1187 is 11.87% or rounded to 1 decimal place is 11.9%.