Multiple choice

Mitchel got retired from her services in military and was looking for a best retirement plan to invest her \$24,025. She was offered a couple of plans by Fidelity Investments on different interest rates. She opted for a plan that provides compound interest making her amount to \$27,225 on her amount after 2 years. What was the approximate rate percent offered to Mitchel?

  1. 5.3%

  2. 6.5%

  3. 7.5%

  4. 7.8%

  5. 8%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Using the compound interest formula A = P(1 + r/100)^n, we have 27225 = 24025(1 + r/100)^2. Dividing both sides by 24025 gives 1.1332 = (1 + r/100)^2. Taking the square root of 1.1332 yields approximately 1.0645, meaning r is approximately 6.5%.

AI explanation

Using the compound interest formula, Amount equals Principal times the quantity 1 plus R over 100, all raised to the time in years. We have 27225 equals 24025 times the quantity 1 plus R over 100, squared. Dividing 27225 by 24025 gives approximately 1.1328, and taking the square root yields 1.065, meaning the rate is 6.5%.

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