Answer to Question #207148 in Financial Math for Ayesha

Question #207148

a capital of 500 dollars earns 150 dollars of interest in 6 years. What was the

interest rate if compound interest is used? What if simple interest is used?


1
Expert's answer
2021-06-15T18:23:16-0400

Compound interest

A=P(1+rn)ntA = P(1 +\frac{ r}{n})^{nt}

A=final amount

P=initial principal balance

r=interest rate

n=number of times interest applied per time period

t=number of time periods elapsed

Amount=Interest+Amount

=150+500=650=150+500=650

A=P(1+rn)ntA = P(1 +\frac{ r}{n})^{nt}

650=500(1+r1)1×6650 = 500(1 +\frac{ r}{1})^{1×6}

1.3=(1+r)61.3=(1+r)^6

1.36=1+r=1.0446750\sqrt[6]{1.3}=1+r\\=1.0446750

1.04467501=0.04467504.46750%1.0446750-1=0.0446750\\4.46750\%

Simple interest

I=P×I×TI=P×I×T

  • P = Principal Amount
  • I = Interest Amount
  • r = Rate of Interest per year in

150=500×I×6150=3000II=0.050.05×100=5%150=500×I×6\\150=3000I\\I=0.05\\0.05×100=5\%





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