Answer to Question #134236 in Finance for Khalid

Question

sarah transported 12,500$ in a bank 4 years back. she earned today a total amount of 15,500$ what was the rate of interest charged for her investmeny

Answer 1

solution

$Initial\ investment, \ P=12,500$

$Final\ value, \ C=15,500$

$Duration, \ n=4\ years$

Let the interest rate $=r$

Assuming her initial investment is compounded annually;

$$C= P \ (1+r)^n$$ $$15,500 = 12,500 \ (1+r)^4$$ $$1.24= (1+r)^4$$ $$ln\ (1.24)= 4\ ln\ (1+r)$$ $$0.0538= ln\ (1+r)$$ $$e^{0.0538}= 1+r$$ $$1.05525 -1= 0 .05525=r$$

answer: the rate of return on her investment is $5.525\%$