Question

What is the effective rate of interest if $1,000 compounds to $1,331 in 3 years?

The effective rate of interest, if $1,000 compounds to $1,331 in 3 years is
%.

Answer 1

9514 1404 393

Answer:

10%

Explanation:

The compound interest formula is ...

A = P(1 +r)^t

Filling in the given values, we have ...

1331 = 1000(1 +r)^3

1.331^(1/3) = 1 +r = 1.1 . . . . . divide by 1000, take the cube root

r = 0.1 = 10% . . . . . . . subtract 1

The effective rate is 10% per year.