Question

Rosie deposit a single payment of $5,000 into a savings account. at the end of 8 years, Rosie has $8,800 in the account. find the nominal rate compounded quarterly earned by the account.

1. set up the equation of value using the numbers from the problem.

2. find the nominal rate. solve the problem using the algebraic method and showing the steps you used in arriving at your answer.

Answer 1

1. PV =5000
FV at the end of 8 years =8800
Number of quarters =8*4 =32
Nominal Rate compounded quarterly using algebraic method=4*((FV/PV)^(1/n)-1)=4*((8800/5000)^(1/32)-1) =7.1292

2. Nominal Rate compounded quarterly =4*((8800/5000)^(1/32)-1)=4*((1.76)^(1/32)-1) =7.1292% or 7.13%