Question

A downtown bank is advertising that if you deposit $1,000 with them, and leave it there for 65 months, you can get $2,000 back at the end of the period. Assuming monthly compounding, what is the interest rate paid by the bank

Answer 1

Rate of interest = 1.07% (Approx)

Step-by-step explanation:

Given:

Future deposit value (FV) = $2,000

Present deposit value (PV) = $1,000

Total number of period (n) = 65 month

Rate of interest (r) = ?

Computation of Rate of interest :

`Future\ deposit\ value = PV(1+r)^n`

`2,000=1,000(1+r)^(65)`

`(2,000)/(1,000) =(1+r)^(65)`

`2 =(1+r)^(65)`

`1+r = 1.01072086`

`r = 1.01072086-1\\\\r = 0.01072086`

r = 1.072086%

Rate of interest = 1.07% (Approx)