Question

You want to invest $5000 compounded monthly. What interest rate will you need to invest it at in order to have $25000 in 10 years?

Answer 1

From the question, we are given that

$\begin{gathered} principal=\text{ \ }5000 \\ Amount=\text{ \ 25000} \\ time=10\text{ years} \\ n=12 \end{gathered}$

We can then find the rate using the formula below.

$\begin{gathered} r=n\left[\left(\frac{A}{P}\right)^{\frac{1}{nT}}-1\right] \\ r=12×\left[\left(\frac{25000}{5000}\right)^{\frac{1}{12\times10}}-1\right] \\ r=0.1620276 \end{gathered}$

Therefore, we will convert to percentage.

$\begin{gathered} R=r\times100 \\ R=0.1620276\times100 \\ R=16.203 \end{gathered}$

The interest rate required to get a total amount of $25,000.00 from compound interest on a principal of $5,000.00 compounded 12 times per year over 10 years is

Answer: 16.203%