If the future value (FV)in two years of $100,000 invested in a certain fund that compounds it at a fixed rate annually is $116,640,at what rate has it been compounded?
A)8.00%
B)11.66%
C)16.00%
D)24.20%
E)10.00%

Question

Quizplus · Accepted Answer

The future value (FV) formula for compound interest is FV = PV(1 + r)^n, where PV is the present value, r is the annual interest rate, and n is the number of years. Here, FV = $116,640, PV = $100,000, and n = 2. Rearranging the formula to solve for r gives r = ((FV / PV)^(1/n)) - 1. Plugging in the numbers: r = (($116,640 / $100,000)^(1/2)) - 1 = (1.1664^(1/2)) - 1 ≈ 0.08, or 8%.

If the Future Value (FV)in Two Years of $100,000 Invested