Suppose you purchase a savings bond today for $25.In seven years you may cash in the savings bond for $50.What is the approximate interest rate paid by the savings bond?
A)5%
B)10%
C)15%
D)20%

Question

Quizplus · Accepted Answer

The savings bond doubles in value in 7 years, so the interest earned over that period is the amount of increase in value divided by the initial value: 
Interest earned = ($50-$25) / $25 = $25 / $25 = 1
This means the interest rate is 100% over 7 years, so the approximate annual interest rate is 100% / 7 = 14.29%. The closest answer choice is B, 10%.

Suppose You Purchase a Savings Bond Today for $25