Question

Given A = P(1 + r)t, what interest rate (to the nearest percent) is needed to grow $5000 to $8000 in 5 years if interest is compounded annually?

7%

8%

9%

10%

11%

Answer 1

Use A = P(1 + r)^t:

8000 = 5000(1 + r)^5 → (1 + r)^5 = 1.6 → 1 + r = 1.6^(1/5) ≈ 1.0985

r ≈ 0.0985 ≈ 9.85%, which rounds to 10%.