Question

Tracy invested in a share of stocks with an annual interest rate of 3%. The following expression represents the value of the stock after n years. Find the approximate interest rate over 7 years.

60(1.03) ^n

?
- 23%
- 21%
- 15%
- 19%
?

Answer 1

23%

(ive done the test & 21% is not the right answer)

Answer 2

The value of the stock after the end of years would be:
v=60(1.03)^n
v(7)=60(1.03)^7
v(7)=73.80
therefore the rate of interest of the stock in 7 years will be given as follows:
current value of the stock is given by:
C=e^(-r)V
but C=60
v=73.80
hence:
60=e^(-r)×73.80
60/73.70=e^-r
0.8131=e^-r
introducing natural logs we get:
ln 0.8131=-r
-0.2069=-r
hence:
r=0.2069=0.21=21%
the answer is 21%