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christydenise
07-10-2011, 05:18 PM
I have to find the rate on a \$500 investment with 180 compounding periods with accumulated interest of \$900 for 2 years. I cant figure out how to solve for r. My book shows solving for t but I am not able to find it.

JeffM
07-10-2011, 07:19 PM
I have to find the rate on a \$500 investment with 180 compounding periods with accumulated interest of \$900 for 2 years. I cant figure out how to solve for r. My book shows solving for t but I am not able to find it.
OK
This not a hard problem ONCE you remember the two fundamental formulas related to compound interest.
Given:
B = beginning balance,
F = final balance,
i = interest rate (expressed as a decimal) for the period,
n = the number of periods, and
A = interest accumulated over all n periods;
then (1) F = B(1 + i)[sup:phaeov0x]n[/sup:phaeov0x] and (2) A = (F - B).

It is then just basic algebra to derive F = (B + A) from formula 2, right?

Can you see how to DERIVE from formula 1 a formula for i using not very sophisticated algebra? If so, derive it.
So, what are B, A, n, and F?
So i = ?

If these hints are not enough, please tell me where you are stuck.