Question

A customer invests 50000. 10 years later, the investment is worth 100000. the customers annual compouned rate of return is?

Answer 1

Answer: The rate of interest is 7.18 %

Explanation:

To calculate the rate of interest, we use the equation used for the interest compounded monthly follows:

$A=P(1+\frac{R}{n})^{nT}$

A = Amount after time period 'T' = $100,000

P = Principal amount = $50,000

R = rate of interest = ?

n = Number of times interest applied per time period = 1   (annually)

T = time period = 10 years

Putting values in above equation, we get:

$100,000=50,000(1+\frac{R}{1})^{1\times 10}\\\\R=0.0718$

Calculating the rate of interest in percentage:

$\Rightarrow R\times 100=0.0718\times 100=7.18\%$

Hence, the rate of interest is 7.18 %