What nominal rate of interest-compounded quarterly will have to be earned on a savings account for it to grow from $1525 to $1955 over a period of 21 months?
A) 14.45%
B) 15.45%
C) 12.45%
D) 3.61%
E) 10.45%

Question

Quizplus · Accepted Answer

The formula for compound interest is 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, A = $1955, P = $1525, n = 4 (since the interest is compounded quarterly), and t = 21/12 years (since 21 months is equal to 1.75 years). We need to solve for r. Rearranging the formula to solve for r gives us r = n[(A/P)^(1/nt) - 1]. Substituting the given values and solving for r gives us the nominal annual interest rate, which is approximately 14.45%.

What Nominal Rate of Interest-Compounded Quarterly Will Have to Be