Question

When "P" Dollars is invested at interest rate "i", compounded annually, for "t" tears, the investment grows to "A" dollars, where A=P(1+i)^t. When Sara enters 11th grade, her grandparents deposit $10,000 in a college savings account. Find the interest rate "i", if the $10,000 grows to $11,193.64 in two years.

Answer 1

The interest rate is 0.58, or 58 percent.

11,193.64 = 10,000 (1 + i)^2
Divide each side by 10,000.
1.119364 = (1 + i)^2
Take the square root of both sides.
1.058 = 1 + i
Subtract 1
i = 0.58