Question

1.3 George invested N$ 12550 for 5 years. After 5 years, he received a total amount of N$ 22500 from his investment. Calculate the annual rate at which interest was paid? (5)

Answer 1

Answer:

12.38%

Step-by-step explanation

In this case its is very useful to know the Future Value formula:

$FV= PV(1+i)^n$

where FV= future value

PV= present value

i= interest rate and

n= number of periods

Since, FV=22500, PV=12550 and n= 5 years, we can solve i:

$FV= PV(1+i)^n\\\\22500=12550(1+i)^5\\\\\frac{22500}{12550}=(1+i)^{5}\\ \\\sqrt[5]{\frac{22500}{12550} }=1+i \\\\\sqrt[5]{\frac{22500}{12550} }-1=i\\\\0.1238=i$

i=12.38%