Question

# 5. Your bank balance is exactly \$10,000. Three years ago you deposited \$7,938 and have not...

5.

Your bank balance is exactly \$10,000. Three years ago you deposited \$7,938 and have not touched the account since. What annually compounded rate of interest has the bank been paying?

8.65%

26.00%

8.00%

6.87%

6.

Which of the following interest rates will come closest to doubling invested money in five years?

13%

14%

15%

16%

5. Present value = Amount three years ago = PV = \$7938

Time period = n = 3 years

Future value = Amount after three years = FV = \$1000

Annual compounded rate = r

Future value is calculated using the formula:

FV = PV*(1+r)n

10000 = 7938*(1+r)3

1+r = (10000/7938)1/3 = 1.0800146215799

r = 1.0800146215799 - 1 = 0.0800146215799 ~ 8.00% (Rounded to two decimals)

6. Suppose we have \$1 and it doubles to \$2 in 5 years

Present Value = PV = \$1

Future value = FV = \$2

Time period = n = 5 years

Interest rate = r

Future value is calculated using the formula:

FV = PV*(1+r)n

2 = 1*(1+r)5

1+r = (2/1)1/5 = 1.14869835499704

r = 1.14869835499704 - 1 =14.869835499704% ~ 15% (Rounded to nearest percentage)