Answer to Question #182051 in Macroeconomics for SYEDA ZAINAB

Question

A defence certificate worth one hundred rupees now would be worth Rs. 425 at the end of 10 years. What is the implied rate of compound interest?

Answer 1

SOLUTION:-

Given:-

Principal amount(P)- 100

Time (T)= 10 years

Final Amount(A) =425

n=1 as annually compounding , if monthly than n= 12

We are considering annualy

To find

Rate(r) = ?

Using formula

$\boxed{A =P(1 + {r\over n})^{nt}}$

$\boxed{425=100(1 + {r\over 1})^{10}}$

0.425= $(1 + {r\over 1})^{10}$

Now r can be found

As in this question r comes out to be

|r| = 0.08