jmc

Question

Mr. Madoff invests 1000 dollars in a fund that compounds annually at a constant interest rate. After three years, his investment has grown to 1225 dollars. What is the annual interest rate, as a percentage? (Round your answer to the nearest integer.)

Accepted Answer

Let r be the annual interest rate. Then after three years, Mr. Madoff's investment is 1000 ( 1 + r100 )^3, so 1000 ( 1 + r100 )^3 = 1225.Then ( 1 + r100 )^3 = 1.225,so 1 + r100 = [3]1.225 = 1.069987 ,which means r = 7, to the nearest integer.