Question

Mr. Hayes opened an account with a deposit of $3,500

1)The account earned compound interest
2) He did not make any additional deposits or
withdrawals
3)At the end of 5 years his balance was
$4,097.01
What is the annual interest rate on this account?
A) 2.8%
D) 44%
B) 32%
E) 51%
C 37%
F) None of the above

Answer 1

9514 1404 393

Answer:

B) 3.2%

Explanation:

The future value is given by ...

A = P(1 +r)^t

Filling in the given information, we can solve for r.

4097.01 = 3500(1 +r)^5

4097.01/3500 = (1 +r)^5 . . . . divide by 3500

(4097.01/3500)^(1/5) = 1 +r . . . . take the 5th root

(4087.01/3500)^(1/5) -1 = r ≈ 0.032 = 3.2%

The annual interest rate on this account is 3.2%.