Question

What was the annual interest rate if a CD earned $161.46 on a principal of $2,500 over 25 months? 2.9%

Answer 1

Solving for rate r as a decimal

`r=n(((A)/(P))^{(1)/(nt)}-1)`

A = Accrued Amount (principal + interest)

P = Principal Amount

I = Interest Amount

R = Annual Nominal Interest Rate in percent

r = Annual Nominal Interest Rate as a decimal

r = R/100

t = Time Involved in years, 0.5 years is calculated as 6 months, etc.

n = number of compounding periods per unit t; at the END of each period

`r=365\cdot(((2661.46)/(2500))^{(1)/(365\cdot2.083)}-1)`

r = 0.030041617

Then convert r to R a percentage

R = r * 100

R = 0.030041617 * 100

R = 3.00%/year