Question

Suppose you deposit $20,000 into a saving account at your local bank. If the bank pays an average interest rate of 5% annually, how much money will you have in your saving account in 15 years?

Suppose, your bank talks you into opening a saving account with them. The bank promises that if you put $10,000 in the saving account today, you will receive $20,000 10 years from now. What is the average interest rate that the bank will pay you over this 10-year period?

Answer 1

Answers-

Q)

Given

Deposited amount = P = $ 20000
Interest rate = r = 5 % annually = 0.05
Number of years = N = 15

Amount = P x ( 1+r)N

Amount = $ 20000 x ( 1+ 0.05)15

Amount = $ 20000 x 1.0515

Amount = $ 20000 x 2.0789

Amount = $ 41578

Q)

Given

Principal = P = $10000
Amount after 10 yaers = A = $ 20000
Number of years = N = 10

Average interest rate = r

Amount = P x ( 1 +r)N

$ 20000 = $ 10000 x ( 1+r)10

( 1 + r)10  = $ 20000 / $ 10000

( 1 + r)10  = 2

(1 + r) = 2 1/10

1 + r = 2 0.1

1 + r = 1.0718

r = 1.0718 - 1

r = 0.0718

r = 7.18 %

Therefore  the average interest rate that the bank will pay over 10-year period = 7.18 %