Question

When Rahul began 7th grade, he put his savings of $3,000 in an account that compounded interest annually. He hoped to have $6,000 by the time he graduates high school in six years. What interest rate is required for him to reach his goal?

Answer 1

An interest rate of 12 percent is required.

Answer 2

The formula for annual compound interest is:

A = P (1 + r/n)ⁿˣ

Where:

A = Future value

P = The principal investment amount

r = The annual interest rate

n = The number of times that interest is compounded per year

x = The number of years

A = $6,000

P = $3,000

r = ?

n = 1 times

x = 6 years.

6000 = 3000 × (1 + r)⁶

6000/3000 = (1 + r)⁶

2 = (1 + r)⁶

Taking 6th root on both sides.

1.12 = 1 + r

r = 1.12 - 1

r = 0.12

r = 12%