Tropical Tans is saving money to build a new salon. Three years ago, they set aside $12,000 for this purpose. Today, that account is worth $16,418. What rate of interest is Tropical Tans earning on this
Money?
A) 10.88%
B) 10.97%
C) 11.01%
D) 11.14%
E) 11.23%

Question

Quizplus · Accepted Answer

To find the rate of interest, we can use the formula:
A = P(1+r/n)^(nt)
where A is the final amount, P is the initial amount, r is the interest rate, n is the number of times the interest is compounded per year, and t is the time in years.
In this case, P = $12,000, A = $16,418, t = 3 years and we don't know the rate of interest. We assume the interest is compounded annually (n =1), then we can rearrange the formula to solve for r:
r = n((A/P)^(1/nt) - 1)
r = 1((16,418/12,000)^(1/(1*3)) - 1) = 11.01%
Therefore, the best choice is C, 11.01%.

Tropical Tans Is Saving Money to Build a New Salon