Finite Math: Math 132

Question

what simple interest rate is required to get $500 in interest on a $4,000 investment over 7 years?

Answer 1

Assuming interest is compounded annually. Earning $500 on $4000 means the value of the investment would be worth $4500 at the end of the time period. We would use the formula:

FV = PV (1 + r)^t

Substituting the above values, we get

4500 = 4000 (1 + r)⁷

9/8 = (1 + r)⁷

log (9/8) = 7 log (1+r) = 0.05115

log (1 + r) = 0.0073075

1 + r = 1.01697

r = 0.01697 = about 1.7%