Question

12. If an investment of $4,000 will grow to $6,250 in four years with monthly compounding, the annual interest rate will be closest to: * A. 11.2%. B. 12.3%. C. 13.0%. D. 14.0%. E. None of the above.

Answer 1

Solution

Answer-11.2%

Future value=Amount invested*(1+r)^n

Where

r=intrest rate per period

n=number of periods=12*4=48 in this question

Future value=6250

Amount invested=4000

Putting value in formula

6250=4000*(1+r)^48

Solving we get r=0.93410%

Thus annual intrest=monthly rate*12=.93410*12

=11.2092%

Thus annual intrest rate=11.2%

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