Find the present value of the future value.
-Find the required annual interest rate, to the nearest tenth of a percent, for $1100 to grow to $1400 if interest is compounded monthly for 6 years.
A) 4.0%
B) 0.3%
C) 2.7%
D) 8.1%

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. Rearranging the formula to solve for $r$, we get $r = n[(\frac{A}{P})^{\frac{1}{nt}} - 1]$. Substituting $A = 1400$, $P = 1100$, $n = 12$, and $t = 6$ into the formula, we can solve for $r$. After calculation, the rate that rounds to the nearest tenth of a percent is approximately 4.0%.

Find the Present Value of the Future Value