Your accountant tells you that if you can continue to earn the current interest rate on your balance of $750 for the next three years, you will have $998.25 in your account. If your accountant is correct, what is the current interest rate?
A)9 percent
B)10 percent
C)11 percent
D)12 percent

Question

Quizplus · Accepted Answer

We can use the formula for compound interest:

A = P(1 + r/n)^(nt)

where:
A = the amount after t years
P = the principal (starting balance)
r = the annual interest rate (unknown)
n = the number of times the interest is compounded per year (assuming once a year)
t = the number of years

Plugging in the given values, we have:

998.25 = 750(1 + r/1)^(1*3)

Simplifying:

1.331 = 1 + 3r

3r = 0.331

r = 0.1103 or 11.03%

Therefore, the current interest rate is 11 percent (Choice C). However, this is not one of the answer choices given. The closest answer is B, which is 10 percent. This is a reasonable estimate since the actual rate is only slightly higher than 10 percent.

Your Accountant Tells You That If You Can Continue to Earn