christydenise

07-10-2011, 04:18 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, 06:19 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.

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