Question

A downtown bank is advertising that if you deposit $1,000 with them, and leave it there for 65 months, you can get $2,000 back at the end of the period. Assuming monthly compounding, what is the interest rate paid by the bank

Answer 1

Answer:

Rate of interest = 1.07% (Approx)

Explanation:

Given:

Future deposit value (FV) = $2,000

Present deposit value (PV) = $1,000

Total number of period (n) = 65 month

Rate of interest (r) = ?

Computation of Rate of interest :

$Future\ deposit\ value = PV(1+r)^n$

$2,000=1,000(1+r)^{65}$

$\frac{2,000}{1,000} =(1+r)^{65}$

$2 =(1+r)^{65}$

$1+r = 1.01072086$

$r = 1.01072086-1\\\\r = 0.01072086$

r = 1.072086%

Rate of interest = 1.07% (Approx)