Question

You invest $3,000 and earn $596 over 22 months. What nominal rate of annual interest (compounding monthly) did you earn? (expressed as a percentage to two decimal places; don’t use the % sign)

Answer 1

So we have got

Principal amount - 3000

Interest earned = 596

Total maturity amount - 3596

over a period of 22 months ,

As per the compounding formula we know ,

But we have got monthly compounding,

So we are going to apply annual rate as r/months or r/12 where 12 is the number of months

and for time we have got , t = 22 months .

So

3596 = 3000( 1+ 0.01r/12)^22

or 0.01 r/ 12 = 1.00827 -1

or 0.01r/12 = 0.00827

or 0.01r = 0.09924

or r = 9.92% p.a compounded monthly approx