who had the higher rate of interest someone who earned 400$ over 2 years on 4000$ investment or someone who earned 960$ interest over 4 years on her 6000$ investment?
If I calculated correctly the person that earned 400$ over 2 years on a 4000$ investment. their interest earned was 5%
for the person who earned 960$ over 4 years on a 6000$ investment. their interest was 1.5
Am I correct, or what am I doing wrong ?
I am not certain how the 960 was paid, so I will assume it was paid at the end.
6960=6000(1+i)^4
which brings i to be 3.78 percent.
check me.
for the other, I get 4.88 percent
I made no assumptions about compounding.
thank you Bob, I am sure you are correct but I will check just so I can understand it for next time. Thanks
To determine who had the higher rate of interest, you need to compare the interest rates earned by both individuals.
Let's calculate the interest rates for each scenario:
For the first person who earned $400 over 2 years on a $4000 investment:
Interest rate = (Interest / Principal) * (100 / Time)
Interest rate = ($400 / $4000) * (100 / 2)
Interest rate = 0.10 * 50
Interest rate = 5%
For the second person who earned $960 over 4 years on a $6000 investment:
Interest rate = (Interest / Principal) * (100 / Time)
Interest rate = ($960 / $6000) * (100 / 4)
Interest rate = 0.16 * 25
Interest rate = 4%
Based on these calculations, your initial intuition was correct. The person who earned $400 over 2 years on a $4000 investment had a higher interest rate of 5% compared to the person who earned $960 over 4 years on a $6000 investment, which resulted in an interest rate of 4%.
So, you were not doing anything wrong, and your analysis was correct.