Question

Shandra is going to invest $530 and leave it in an account for 5 years. Assuming the interest is compounded daily, what interest rate, to the nearest hundredth of a percent, would be required in order for Shandra to end up with $700?

Answer 1

Answer: 5.56%

Explanation:

Compound interest formula:

A = P(1 + r/n)^nt

A = final amount

P = principle amount (original amount of money)

r = interest rate

n = number of times interest in compounded per year

t = time

Step 1:

Fill in the formula

A = 700 (she ends up with this amount of money)

P = 530 (she started with this)

r = ?

n = 365 (it is compounded 365 times per year, or once a day)

t = 5 (she left the money in the account for 5 years)

700 = 530(1 + r/365)^365(5)

Step 2:

Solve the equation for r. You will get 0.055644...

Convert this to a percent and you get the final answer of 5.56%