Kyla invests USD 2,397 in a fixed annual interest account, compounded every 2 months; after 5 years, the account has reached USD 2,689.88.

Question

What is the interest rate on this account?

Answer 1

Compound Interest Formula: A = P(1+r/n)^nt

A = Future Balance

P = Initial Balance

r = interest rate

n = number of times compounded per year

t = time (usually years)

In this case: A = 2689.88, P=2397, n = 6, t = 5

Unknown: r

2689.88 = 2397(1+r/6)^6*5

(2689.88/2397)^1/30= 1+r/6 Divide by 2397, raise to 1/30 to get rid of exponent on right side

(2689.88/2397)^1/30-1 = r/6 Subtract 1

6((2689.88/2397)^1/30 -1) = r Multiply by 6

r ≈ 0.0231001 or 2.31001%