Question

1. You originally opened a savings account with a $4,000 deposit. Today the account has a balance of $10,000. 7 years have passed since you opened the account. What rate of interest have you earned assuming the account has compounded annually?

2.You just deposited $5,000 into an account. If you allow the money to grow for 9 years, what will be your ending account balance? Assume the account has earned 8% compounded quarterly.

3.You originally opened a savings account with a $4,000 deposit. Today the account has a balance of $10,000. If the account has been earning 5% interest compounded annually, how many years have passed since you opened the account?  

Answer 1

Solution

1. Future value=Principal*(1+r)^n

where

Principal=4000

Future value=10000

n=number of periods=7

r=intrest rate per period

10000=4000*(1+r)^7

Solving we get r=0.139852

Interest rate=13.99%

2.

Future value=Principal*(1+r)^n

where

Principal=5000

n=number of periods=9*4=36

r=intrest rate per period=8/4=2%

Future value=5000*(1+.02)^36

=10199.43672 (Amount after 9 years)

3.

Future value=Principal*(1+r)^n

where

Principal=4000

Future value=10000

n=number of periods

r=intrest rate per period=5%

10000=4000*(1+.05)^n

Solving we get n=18.78 years (Years passed since opening the account)

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