Finite Math

What interest rate, compounded monthly, would you need to be paid in order to grow a $2000 investment into $3500 over a five year period?

  1. 👍 0
  2. 👎 0
  3. 👁 160
asked by Ericka
  1. Use the compound interest formula for
    n=number of periods = 5*12 = 60
    R=monthly interest rate, 1.01 for 1%
    P=present value of investment = $2000
    F=future value of investment = $3500
    Then
    F=ARn
    3500=2000R60
    rearrange
    Rn = 3500/2000 = 1.75
    Take log on both sides
    60*log(R)=log(1.75)
    log(R)=log(1.75)/60
    R = elog(1.75)/60
    =1.00937
    The equivalent annual interest. r
    =(R-1)*12=11.24%

    Note: in the above expression, I used log(x) for natural log, usually written as ln(x). You would have got the same answer using log to the base 10, but at the end, the values must be raised to the power of 10 (instead of e).

    1. 👍 0
    2. 👎 0
    posted by MathMate

Respond to this Question

First Name

Your Response

Similar Questions

  1. Finance - Loans problem please help

    A company borrows $170000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay monthly interest payments at the nominal annual rate of 7% compounded monthly. At the same time the

    asked by Tina on April 1, 2015
  2. Finance - Loans problem

    Can someone please explain how this problem is laid out to solve.A company borrows $170000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay monthly interest payments at the

    asked by Anonymous on March 31, 2015
  3. Finance - Loans problem

    A company borrows $170000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay monthly interest payments at the nominal annual rate of 7% compounded monthly. At the same time the

    asked by Anonymous on March 31, 2015
  4. Please Help me with a Finance - Loan problem

    A company borrows $170000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay monthly interest payments at the nominal annual rate of 7% compounded monthly. At the same time the

    asked by Tina on April 1, 2015
  5. Finite Math

    What interest rate, compounded weekly, would you need to be paid in order to grow an $8000 investment into $12,000 over a ten year period?

    asked by Ericka on December 7, 2010
  6. Finance - Loans problem

    Reiny the answer 307.33 you posted at the bottom is coming up incorrect. please if you can help i would be very grateful. A company borrows $170000, which will be paid back to the lender in one payment at the end of 5 years. The

    asked by Anonymous on April 1, 2015
  7. Math

    Darla purchased a new car during a special sales promotion by the manufacturer. She secured a loan from the manufacturer in the amount of $24,000 at a rate of 4.2%/year compounded monthly. Her bank is now charging 6.8%/year

    asked by Kayla on November 28, 2017
  8. MATH 123

    Darla purchased a new car during a special sales promotion by the manufacturer. She secured a loan from the manufacturer in the amount of $23,000 at a rate of 4.6%/year compounded monthly. Her bank is now charging 6.2%/year

    asked by Anonymous on July 5, 2017
  9. MATH

    Consider an amortized loan of $10,000 ( with 10.0% interest compounded monthly) paid back over two yrs in equal, monthly installments. For each of the first two months, calculate three things: the interest paid for the month, the

    asked by Julian on October 5, 2011
  10. math

    A lender gives you a choice between the following two 30-year mortgages of $200,000: Mortgage A: 6.65% interest compounded monthly, one point, monthly payment of $1283.93 Mortgage B: 6.8% interest compounded monthly, no points,

    asked by Logan on December 7, 2012

More Similar Questions