SOLUTION: If P20,000 invested at interest compounded annually amounts to P21,218 in two years, what is the rate of interest?

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Question 1057528: If P20,000 invested at interest compounded annually amounts to P21,218 in two years, what is the rate of interest?
Answer by math_helper(2461) About Me  (Show Source):
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We'll need the compound interest formula:
+F+=+P+%281%2Br%2Fn%29%5E%28nt%29+
—
Where:
F = future value (or final value)
P = present value
n = number of compounding periods per year
r = rate, expressed as a decimal (so 4% is 0.04)
t = number of years
—
We know:
P = 20000
F = 21218
t = 2
n = 1 (compounds once per year)
We need to solve for r
Plugging in these values gives:
+21218+=+20000%281%2Br%2F1%29%5E%281%2A2%29+
+21218%2F20000+=+%281%2Br%29%5E2+
+1.0609+=+%281%2Br%29%5E2+
+1.03+=+1%2Br+ ( sqrt of both sides )
+r+=+0.03+
—
Ans: r = 3%
—
Check: +20000%281%2B0.03%29%5E2++=+21218+