Question

Terrance hopes to earn $600 $ ⁢ 600 in interest in 4.7 4.7 years time from $12,000 $ ⁢ 12,000 that he has available to invest. To decide if it's feasible to do this by investing in an account that compounds annually, he needs to determine the annual interest rate such an account would have to offer for him to meet his goal. What would the annual rate of interest have to be

Answer 1

The annual rate of interest would have to be approximately 12.77% for Terrance to earn $600 in interest in 4.7 years from an investment of $12,000.

Step-by-step explanation: This can be calculated by using the formula:

(future value) = (principal) * (1 + (interest rate) )^(number of years)

where future value = $12,600, principal = $12,000, number of years = 4.7

so (12600/12000)^(1/4.7) = 1 + r

r = (12600/12000)^(1/4.7) - 1 ≈ 12.77%