not sure about this either....

Question

Anders discovered an old pay statement from 10 years ago. His monthly salary at the time was $2610 versus his current salary of $4650 per month. At what (equivalent) compound annual rate has his salary grown during the period?

 

please do not round any calculations

Answer 1

Hi Mia,

 

Let's begin by writing the Compound Interest formula:

    F = P(1 + r)^t

 

Next, let's identify each variable and its given value:

    F (future value) = $4,650/mo. x 12 = $55,800/yr.

    P (principal, i.e. initial value) =

                              $2,610/mo. x 12 = $31,320/yr

    r (compound annual rate) = x (unknown)

    t (number of years) = 10

 

Next, let's plug all our given values and our unknown into the Compound Interest formula and solve for our unknown:

    F = P(1 + r)^t

    55,800 = 31,320(1 + r)¹⁰

    55.800/31,320 = (1 + r)¹⁰

    (155/87) = (1 + r)¹⁰

    (155/87)^0.1 = 1 + r

    1.059451901 = 1 + r

    r = 1.059451901 - 1

    r = 0.059451901

    r = 0.059451901 x 100

    r = 5.9451901% (annual compound rate)

 

Thanks for submitting this problem and glad to help.

 

God bless, Jordan.