Solve the problem.
-An investor buys 100 shares of a stock for $20,000.After 5 years the stock is sold for $32,000.If interest is compounded continuously,what annual nominal rate of interest did the original $20,000 investment earn? (Represent the answer as a percent to three decimal places.)
A)0.094%
B)8.470%
C)9.400%
D)1.200%

Question

Quizplus · Accepted Answer

To find the annual nominal rate of interest, we use the formula for continuous compounding: A = Pe^(rt), where A is the amount after time t, P is the principal amount, r is the rate, and t is the time in years. Here, A = $32,000, P = $20,000, and t = 5 years. Solving for r gives r = ln(A/P)/t = ln(32000/20000)/5 = ln(1.6)/5 ≈ 0.094, which is 9.400% when expressed as a percentage.

Solve the Problem. -An Investor Buys 100 Shares of a Stock for $20,000.After