Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years,you will have about $983.58.If your accountant is correct,what is the current rate of interest?
A)5 percent
B)6 percent
C)7 percent
D)8 percent

Question

Quizplus · Accepted Answer

We can use the compound interest formula to solve this problem:
A = P(1 + r/n)^(nt)
Where:
A = Final amount after 10 years = $983.58
P = Principal amount (initial balance) = $500
r = Annual interest rate (what we want to find)
n = Number of times interest is compounded per year (unknown, but we can assume it's once per year)
t = Time in years = 10

Plugging in the numbers:
$983.58 = $500(1 + r/1)^(1*10)
1.96716 = (1 + r)
r = 0.96716 (converted from decimal to percentage)
r = 9.6716%
Therefore, the current rate of interest is about 7 percent (choice C).

Your Accountant Tells You That If You Can Continue to Earn