Question

Hans invests $550 at a rate of x% per year compound interest. At the end of 10 years, the value of the investment is $638.30, correct to the nearest cent.

Find the value of x.

Answer 1

1.5%.

Explanation:

x per cent is written as 0.01x as a decimal fraction.

638.30 = 550(1 + 0.01x)^10

(1 + 0.01x)^10 = 638.30/550

Taking logarithms:

10 ln (1 + 0.01x) = ln ( 638.30/550)

ln (1 + 0.01x) = ln ( 638.30/550)/ 10

ln(1 + 0.01x) = 0.014889

Converting the logs:-

1 + 0.01x = e^0.014889 = 1.015

0.01x = 1 - 1.015

0.01x = 0.015

x = 0.015/ 0.01

= 1.5.