Multiple choice

Sophia invested her inheritance in a real estate fund, which grew to \$15,000 by the end of the 2nd year and increased to \$18,000 by the end of the 3rd year under compound interest. What is the annual compound interest rate?

  1. 18.5%

  2. 19.5%

  3. 20%

  4. 21%

  5. 22.5%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The amount grows from 15,000 to 18,000 in one year (from end of year 2 to end of year 3). The interest earned is 3,000. The rate is (3,000 / 15,000) * 100 = 20%.

AI explanation

Using the compound interest growth formula, the amount at the end of the third year is the amount at the end of the second year multiplied by one plus the rate divided by 100. We set up the equation 18000 equals 15000 times 1 plus r divided by 100, which simplifies to 1.2 equals 1 plus r divided by 100. Solving for r gives r equals 20, meaning the annual compound interest rate is 20%.

Keep practicing — related questions