Question

1.3 George invested N$ 12550 for 5 years. After 5 years, he received a total amount of N$ 22500 from his investment. Calculate the annual rate at which interest was paid? (5)

Answer 1

12.38%

Explanation

In this case its is very useful to know the Future Value formula:

`FV= PV(1+i)^n`

where FV= future value

PV= present value

i= interest rate and

n= number of periods

Since, FV=22500, PV=12550 and n= 5 years, we can solve i:

`FV= PV(1+i)^n\\\\22500=12550(1+i)^5\\\\(22500)/(12550)=(1+i)^(5)\\ \\\sqrt[5]{(22500)/(12550) }=1+i \\\\\sqrt[5]{(22500)/(12550) }-1=i\\\\0.1238=i\\\\`

i=12.38%