Question

What interest rate would be necessary to obtain $6,500 in 8 years if $5,000 is the amount of the original investment and the interest is compounded yearly?

Answer 1

The formular is

`A=P(1+(r)/(n))^(nt)`
`6500=5000(1+(r)/(1))^(1*8)`
`(6500)/(5000)=(1+r)^8`
`1.3=(1+r)^8`
`1.3^{(1)/(8)}=(1+r)^{8*(1)/(8)}`
`1.3^(0.125)=1+r`
`1.0333=\text{ 1+r}`

subtract 1 from bothside

`r\text{ = 0.0333}`

R = 0.0333 x 100% = 3.33%