Question

Four years ago, Paul invested $1500. Three years ago, Trek invested $1600. Today, these two investments are each worth $1800. Assume each account continues to earn its respective rate of return.
(1) What is annual interest rate that Saul earned?
(2) What is annual interest rate that Trek earned？
(3) Was Trek’s investment worth less than Saul one year ago?

Answer 1

1)	interest rate that Saul earned
	PV= FV/(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	1500= $1800/( 1+r)^4
	0.83333 =1//( 1+r)^4
	r = 0.046635
	Interest rate =4.66%
2)	annual interest rate that Trek earned
	1600= $1800/( 1+r)^3
	r =0.040042
	Interest rate = 4%
3)	Treks Investment 1 year before
	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $1600*( 1+0.04)^2
	=1600*1.08169
	= $1730.7
	Saul's Investment 1 year kbefore
	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $1500*( 1+0.047)^3
	=1500*1.14642
	= $1719.8
	Answer : NO