If Franco deposits $1,000 today in his account, he will have $1,200 at the end of two years. The annual compounded interest rate on Franco's account is ___%.

Question

Quizplus · Accepted Answer

The correct answer is found using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. Here, we have A = $1,200, P = $1,000, n = 1 (assuming the interest is compounded annually as not specified), and t = 2 years. We need to find r. Rearranging the formula to solve for r gives us r = [(A/P)^(1/nt)] - 1. Plugging in the numbers: r = [(1200/1000)^(1/(1*2))] - 1 = (1.2^(1/2)) - 1 ≈ 0.0954 or 9.54%.

If Franco Deposits $1,000 Today in His Account, He Will