Ten years ago, Jackson Supply set aside $125,000 in case of a financial emergency. Today, that account has increased in value to $278,592. What rate of interest is the firm earning on this money?

Question

Quizplus · Accepted Answer

The firm is earning an interest rate that can be found using the formula for compound interest: $A = P(1 + r)^n$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount ($125,000), $r$ is the annual interest rate, and $n$ is the time the money is invested for in years (10 years in this case). Rearranging the formula to solve for $r$, and substituting $A = $278,592$, $P = $125,000$, and $n = 10$, we can solve for $r$ to find the rate of interest. The correct answer, 8.34 percent, indicates the rate at which the initial amount grew to the final amount over the 10-year period.

Ten Years Ago, Jackson Supply Set Aside $125,000 in Case