Question

A financial institution offers a "double-your-money" savings account in which you will have $2 in 11 years for every dollar you invest today. What stated annual interest rate (assuming monthly compounding) does this account offer

Answer 1

The correct answer is 0.06317911524 or 6.3%.

Step-by-step explanation:

According to the scenario, the given data are as follows:

FV = $2

PV = $1

Time period (t)= 11 years

So, we can calculate the rate of interest by using following fomula:

FV=PV ( 1 + r ÷12)^12t

By putting the value, we get

$2 = $1 ( 1 + r ÷ 12)^(12 × 11

$2^(1 ÷ 132) = 1 + r ÷ 12

r ÷ 12 = (1.00526492627 - 1)

r = 0.00526492627× 12

= 0.06317911524 or 6.3%