16 Paddy and Anna each invest $2000 for 5 years.
Paddy earns simple interest at a rate of 1.25% per year.
Anna earns compound interest at a rate of r% per year.
At the end of 5 years, Paddy's investment is worth the same as Anna's investment.
Calculate the value of r.
Answers
Given : Paddy and Anna each invest $2000 for 5 years.
Paddy earns simple interest at a rate of 1.25% per year.
Anna earns compound interest at a rate of R% per year.
At the end of 5 years, Paddy's investment is worth the same as Anna's investment.
To Find : the value of R
Solution:
SI = P * R * T/100
SI = 2000 x 1.25 x 5 /100
= 20 x 1.25 x 5
= 25 x 5
= 125
A = 2000 + 125 = 2125
A = P ( 1 + R/100)^T
=> 2125 = 2000 ( 1 + R/100)⁵
=> 2125/2000 = ( 1 + R/100)⁵
=> 17/16 = ( 1 + R/100)⁵
=> R = 1.2199 %
≈ 1.22 %
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