Find the required annual interest rate, to the nearest tenth of a percent, for $5100 to grow to $6300 if interest is compounded quarterly for 5 years.
A) 2.1%
B) 4.2%
C) 5.3%
D) 1.1%

Question

Quizplus · Accepted Answer

The formula for compound interest is $A = P(1 + \frac{r}{n})^{nt}$, 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. Plugging in the given values: $6300 = 5100(1 + \frac{r}{4})^{4*5}$. Solving for $r$ gives an annual interest rate of approximately 4.2%.

Find the Required Annual Interest Rate, to the Nearest Tenth