Question

An investment of $200 increases at a rate of 9.5% per year. What is the growth factor, b? I think it's 1.095 due to the keyword "increases" but I just want to make sure.

Answer 1

The growth factor is 1.095.

Explanation:

We are given that,

Initial investment = $200

Increase rate = 9.5%

Now, the growth function is given by
`P(1+r)^n`, where P= initial investment, r= increase rate and n= number of years.

So, we get,

The growth factor is
`b=1+r`

i.e. Growth factor is
`b=1+0.095`

i.e. Growth factor is b= 1.095

Hence, the growth factor is 1.095.

Answer 2

The future worth (F) of the current investment (P) given the interest (i) is calculated through the equation,
F = P x (1 + i)^n
where n is the number of years or compounding period. The growth factor in the equation is, 1 + i which is equal to 1 + 0.095 or 1.095.