Michael Harper has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.)
A) 19%
B) 21%
C) 13%
D) 16%

Question

Quizplus · Accepted Answer

Using the formula for compound interest, we can solve for the required interest rate.
Final amount = starting amount * (1+interest rate)^time

$5,000 = $3,000 * (1+interest rate)^3

(1+interest rate)^3 = $5,000/$3,000

(1+interest rate)^3 = 1.67

Taking the cube root of both sides, we get:

1+interest rate = 1.22

Interest rate = 0.22 or 22%

Rounding to the nearest percent, the answer is 19%. Therefore, Choice A is the best choice.

Michael Harper Has $3,000 to Invest for Three Years