Question

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account. If your accountant is correct, then what is the current interest rate?

Answer 1

The current interest rate is 6%

Step-by-step explanation:

Given that:

• Balance: $800
• Future value: $898.88
• n= 2 years

We have formula for future value as below:

FV = PV
`(1+r)^(n)`

<=>
`(1+r)^(n)` =
`(FV)/(PV)`

<=>
`(1+r)^(2)` =
`(898.88)/(800)`

<=>
`(1+r)^(n)` = 1.1236

<=> 1+ r =
`√(1.1236)` = 1.06

<=> r = 1.06 -1 = 6%

So the current interest rate is 6%