Question

Leo invested $1900 in an account with annually compounded interest. After 3 years, he had $2275 in the account. What was the interest rate of the account? Round your answer to one decimal place. Do not write the percent sign.

Answer 1

6.2

Explanation:

Use the formula for calculating compound interest PN=P0(1+rk)Nk where r is the unknown, PN=2275, P0=1900, k=1, and N=3. Substitute the values into the formula and simplify.

2275=1900(1+r1)3⋅1

Let's simplify within the parenthesis and the exponent.

2275=1900(1+r)3

Divide both sides by 1900.

22751900=(1+r)3

To isolate the variable, take the cube root of each side.

22751900−−−−−√3=1+r

Subtract 1 from each side to get r by itself.

22751900−−−−−√3−1=r

Simplify for an answer of r≈0.062 which is the interest rate 6.2%.