Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account.If your accountant is correct,then what is the current interest rate?
A)6 percent
B)7 percent
C)8 percent
D)9 percent

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 final amount, P is the initial balance, r is the interest rate, n is the number of times interest is compounded per year, and t is the time period in years.

In this case, we know that P = $800, A = $898.88, n = 1 (annual compounding), and t = 2 years. We can solve for r by plugging in these values and solving for r:

$898.88 = $800(1 + r/1)^(1*2)
$898.88/$800 = (1 + r)^2
1.1236 = (1 + r)^2
sqrt(1.1236) = 1 + r
1.0604 = 1 + r
r = 0.0604 = 6.04%

Rounding to the nearest whole percent, we get an answer of 6 percent, which corresponds to choice A. Therefore, A is the best choice.

Your Accountant Tells You That If You Can Continue to Earn