Question

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $944.78 in your account. If your accountant is correct, then what is the current interest rate

Answer 1

Answer: 8%

Explanation:

current balance = $750

Period = 3years

Final amount at the end of the third year = $944.78

Rate =?

Using the compound interest formula :

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

Where : A= final amount plus interest

P = principal amount

r = interest rate

t = period

n = number of compounding periods per year = 1

A = P( 1 + r)^t

944.78 = 750(1 + r)^3

Divide both side by 750

944.78/750 = (1+r)^3

1.2597 = (1+r)^3

Take the cube root of both sides

1.07999 = 1+r

r = 1.07999 - 1

r = 0.07999

r = (0.07999) * 100%

r = 7.999% = 8%