Suppose that you want to deposit $8,000 in an RRSP account that pays interest at a fixed rate of 100r% per year compounded monthly; for example, if the interest rate is 4%, then r = 0.04. Find the rate of interest r on the account if the interest earned after 3 years is $750.

Question

Suppose that you want to deposit $8,000 in an RRSP account that pays interest at a fixed rate of 100r% per year compounded monthly; for example, if the interest rate is 4%, then r = 0.04.  Find the rate of interest r on the account if the interest earned after 3 years is $750.

oobleck · Answer

8000((1 + r/12)^(12*4) - 1) = 750 (1 + r/12)^48 = 1.09375 1 + r/12 = 1.00186686 r/12 = 0.00186866 r = 0.0224 = 2 1/4 %