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Suppose $20,000 is invested into an account where interest is compounded semiannually. After 30 years the balance is

$41,951.
What was the interest rate as a percent?
Round the answer to the nearest hundredth of a percent.

User DragonLord
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1 Answer

4 votes

Compound Interest Formula:
A=P(1+(r)/(n))^(nt)

P = initial investment of 20,000

r = interest rate (What we need to find)

n=number of compounding periods per year (Semiannually means twice per year)

A= Amount after t-years

Okay, let's plug it all in.

41,951 = 20000 (1 + r/2)^2(30)

41,951/20000 = (1 + r/2)^60

(41,951/20000 )^1/60 = 1 + r/2

(41,951/20000 )^1/60 - 1 = r/2

2( (41,951/20000 )^1/60 - 1 ) = r

0.02484539... = r

0.02484 * 100 = 2.48% rounded to the nearest hundredth of a percent

I hope I've helped! :)

User Kiarash
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