Question

2. A. What is compounding? What would the future of $500 be after 5 years at 10% compound interest rate?

B. Find the interest rate, I on a given security that costs $100 and that will return $150 after 10 years.

Answer 1

(A). Compount intrest:-Compound interest is the interest calculated on the principal and the interest accumulated over the previous period. It is different from the simple interest.

Formula:- 1) I= A-P

2) A = P(1+r/100)^n

here, I=Intrest

A= Amount

P= Principle

r= Rate of intrest

n=Time

Now, We have P= 5000, n=5, r=10%, I=?

we put these figures in the formula like :- A= 5000(1 +5/100)^5 =6381.41

I=6381.41 - 5000 = 1381.41

  

Answer:- compound intrest=1381.41

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(b) Formula to find Rate of intrest...

(R)=(I * 100)/P*T

I= intrest

P= principle

T= Time

now, we have, P= 100, A=150, T=10, I= A-P=150-100=50

we put these figures in the formula like:-(50*100)/100*10 =5%

Answer= intrest rate is 5%