If $2,500 is invested today, the initial investment plus interest will be worth $5,000 in eight years. What is the annual interest rate on the investment?
A) 1.09%
B) 5.00%.
C) 9.05%.
D) 10.00%.
E) 20.90%

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to solve this problem:

A = P(1 + r/n)^(nt)

where A is the future value, P is the principal (initial investment), r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

We are given that:
P = 2,500
A = 5,000
t = 8

Using algebra, we can solve for r:
r = n[(A/P)^(1/nt) - 1]

Let's assume that the interest is compounded annually (n = 1):

r = 1[(5,000/2,500)^(1/8) - 1] = 0.0905 = 9.05%

Therefore, the annual interest rate on the investment is 9.05%. The correct answer is C.

If $2,500 Is Invested Today, the Initial Investment Plus Interest