SOLUTION: Carlos invested 7000 in a money market mutual fund that pays interest on a daily basis. The balance in his account at the end of 8 mo (245 days) was 7432. Find the effective rate a
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-> SOLUTION: Carlos invested 7000 in a money market mutual fund that pays interest on a daily basis. The balance in his account at the end of 8 mo (245 days) was 7432. Find the effective rate a
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Question 997772: Carlos invested 7000 in a money market mutual fund that pays interest on a daily basis. The balance in his account at the end of 8 mo (245 days) was 7432. Find the effective rate at which Carlos's account earned interest over this period (assume a 365-day year). Found 2 solutions by addingup, Theo:Answer by addingup(3677) (Show Source):
You can put this solution on YOUR website! A= P(1+r/n)^nt
Amount = Principal(1+rate/periods)^time*periods Since the formula is meant for long periods of time, like years, we don't need this. We are going to substitute in rate/periods= rate/365 and in )^nt we'll use 245
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Now let's substitute with the numbers you were given:
7432= 7000(1+r/365)^245 Subtract 7000 on both sides
432/ (1+r/365)^245 Now take the 245 root
245root(432)= 1+r/365
1.025= 1+r/365 Subtract 1 on both sides
0.025= r/365 We found the annual rate. If you need the DAILY rate, go ahead and divide both sides by 365:
0.025/365= r(daily)
If the annual rate is good enough, then 0.025*100= 2.5% is your annual rate.
Lesson learned here: How do you eat an elephant? One bite at a time.
J
