katy invests £2000 in a savings account for 3 years. the account pays compound interest at an annual rate of
2.5% for the first year
X% for the second year
X% for the 3rd year
there is a total of £2124.46 in the savings account at the end of 3 years
Work out the rate of interest in the second year
+37170 What kind of 'compound interest' ??? Continous is what I will assume:
2000e^(.025) = 2050.63 at the beginning of year two
2050.63 e^(r*2) = 2124.46
e^(2r) = 2124.46/2050.63
ln (e^(2r) = ln (2124.46/2050.63)
2r=,03537
r= 1.768 % for years 2 and 3 CONTINOUS COMPOUNDING EXAMPLE
I will assume a slightly different scenario, since it states that annual interest for the the first year is 2.5% compounded annually: So then we have:
2,000 x 1.025=2,050 balance at the beginning of the 2nd year. But, we have:
2,124.46 / 2,050=1.0363 - 1=.0363 x 100=3.63% interest for the remaining 2 years.
Sqrt(1.0363)=1.80% interest rate for the 2nd and 3rd year. So that:
2,000 x 1.025 x 1.018^2=2,124.46 pounds.
