Question

Kaya invests £4000 for 8 years
The investment gets compound interest of x% per annum
At the end of 8 years the investment is worth £6872.74
Work out the value of x

Answer 1

To find the interest rate on the investment for 8 years is equal to 0.7%

Given the following data:

• Principal = £4000

• Future value = £6872.74

• Time = 8 years

To find the interest rate on the investment for 8 years:

Mathematically, compound interest is given by the formula:

$A = P(1 + r)^{t}$

Where;

• A is the future value.

• P is the principal or starting amount.

• r is annual interest rate.

• t is the number of years for the compound interest.

Substituting the given parameters into the formula, we have;

$6872.74 = 4000(1 + r)^{8}\\\\(1 + r)^{8}=\frac{6872.74}{4000} \\\\(1 + r)^{8}=1.7182\\\\1+r=\sqrt[8]{1.7182} \\\\1+r =1.07\\\\r=1.07-1\\\\r=0.7$

Interest rate, r = 0.7%

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