In a recessionary economy,the interest rate on deposits can be 0 percent.However,Raymond has an investment of $25 000 now,and in three years it will mature and pay Raymond $32 000.What is the approximate annual interest rate he will receive?
A)9)3 percent
B)8)6 percent
C)8)9 percent
D)Insufficient information to calculate this question

Question

Quizplus · Accepted Answer

To find the annual interest rate, we can use the formula:

future value = present value * (1 + interest rate)^time

Plugging in the values given in the problem, we get:

$32,000 = $25,000 * (1 + interest rate)^3

Simplifying, we get:

1.28 = (1 + interest rate)^3

Taking the cube root of both sides, we get:

1.089 = 1 + interest rate

Subtracting 1 from both sides, we get:

interest rate = 0.089 or 8.9%

Therefore, the approximate annual interest rate Raymond will receive is 8.6% (rounded to one decimal place).

In a Recessionary Economy,the Interest Rate on Deposits Can Be