Question

QUESTION 2

If I can invest $2,000 today and earn $3000 in five years, what interest rate am I being paid? Enter your answer as a percentage to two decimal points. For example: if your answer were ten percent, you would enter 10.00

Answer 1

Compund Interest is calculated by the formula

A= P(1+r/n)^nt where

A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for

here it is assumed that interest is compounded once a year so n=1

3000=2000(1+r)⁵

3000/2000= (1+r)⁵

(1.5)^1/5 =1+r

r=1.0845-1

r=8.45%