If you deposit $1600 in an account and earn $250 in interest after 5 years, what was the interest rate?
If you deposit $1600 in an account and earn $250 in interest after 5 years, what was the interest rate?
$250 / $1,600 =0.15625 x 100 =15.625% over a period of 5 years.
15.625% / 5 years =0.03125 x 100 =3.125% SIMPLE interest rate per year.
But: [$1,600+$250] / $1,600=1.15625^(1/5) =1.029462 - 1 x 100 =2.9462% COMPOUNDED interest rate per year.
