Hey guys.

Someone posted this same question on here about a year ago, and it was answered correctly (i checked my textbook and it was right). However I did not understand their working out? I've read through my textbook as well but I still don't understand how to do it!

Could you maybe break it down and try and explain it like you would for a preschooler? hahaha

The question:

if it takes 4 years for $2000 to accumulate to $4000, find the compound interest

AzuraSkye
Feb 20, 2017

#1**+5 **

Let's work through it again....I assume you want the interest rate ??

Assuming yearly compounding, we're using

4000 = 2000(1 + r)^4 where r is the interest rate in decimal form

Divide both sides by 2000

4000/2000 = 2 = (1 + r)^4

2 = (1 + r)^4 take the 4th root of both sides

2^(1/4) = [ ( 1 + r)^4] ^ (1/4) the right side simplifies to 1 + r

2^(1/4) = 1 + r subtract 1 from both sides

2^(1/4) - 1 = r

1.1892 - 1 = r

.1892 = r ≈ 18.92% interest rate

CPhill
Feb 20, 2017