# SOLUTION: I'm stuck on the following problem: What annual interest rate compounded annually is required to provide a 21% increase in the initial investment after 2 years. I tried to

Algebra ->  Algebra  -> Finance -> SOLUTION: I'm stuck on the following problem: What annual interest rate compounded annually is required to provide a 21% increase in the initial investment after 2 years. I tried to       Log On

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 Click here to see ALL problems on Finance Question 255266: I'm stuck on the following problem: What annual interest rate compounded annually is required to provide a 21% increase in the initial investment after 2 years. I tried to use the formula S = P(1 + i) to the n power. I put 10,000 in for P as the original investment (just made it up), then I put 12,100 as S the total investment showing an increase of 21%. Then I filled in 4 for n because the interest is compounded annually! Then try and solve for i Not sure if I'm on the right track!!Answer by Theo(3458)   (Show Source): You can put this solution on YOUR website!looks like you started off ok. your formula is: S = P * (1+i)^n you used 10,000 for P and 1.21 * 10,000 = 12100 for S. that's correct but not necessary because you could just as easily have used 1 for P and 1.21 for S. I don't know why you filled in 4 for n. if compounding is annually, then n should have been 2 to represent 2 years. using your numbers for S and P, your formula should have become: 12100 = 10000 * (1+x)^2 x is the annual interest rate. divide both sides of this equation by 10000 to get: 1.21 = (1+x)^2 take the square root of both sides of this equation to get: subtract 1 from both sidesof this equation to get: solve for x to get: x = .1 looks like you are looking for 10% a year growth compounded annually for 2 years. to confirm, substitute in your original equation to get: 12100 = 10000 * (1+x)^2 becomes: 12100 = 10000 * (1.1)^2 simplify to get: 12100 = 12100 confirming the answer is good.