If a bank account begins the year with a $50 balance, but endsthe year with...

If a bank account begins the year with a $50 balance, but ends the year with $55, what is the implied annual interest rate?

If interest rates are currently 5% per year, then what is the interest earned on a $200 investment in one year? (Don't enter the dollar sign

Solutions

Expert Solution

The interest rate is computed as shown below:

Future value = Present value x (1 + r)ⁿ

$ 55 = $ 50 x (1 + r)¹

$ 55 / $ 50 = 1 + r

1.1 - 1 = r

r = 10%

The interest amount is computed as shown below:

= Amount of investment x interest rate

= $ 200 x 5%

= $ 10

jeff jeffy answered 2 years ago

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