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Andy deposits $5000 into an account where intrerest is compounded biweekly. After five years, andy has $6,600 in the account. What was the interest rate on the account?

Question

Andy deposits $5000 into an account where intrerest is compounded biweekly. After five years, andy has $6,600 in the account. What was the interest rate on the account?

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Step 1

Compound interest:

In compound interest, interest is added back to the principal sum so that interest is earned on that added during the next compounding period. That is, compound interest will give an interest on the interest. The interest payments will change in the time period in which the initial sum of money stays in the bank or with the barrower.

The general formula for compound interest is,

A = P * (1 + r/n)nt

Where:

A is the future value of the investment loan including the loan,

P is the principle amount,

r is the annual interest rate in decimals,

n is the number of times interest is compounded per year,

t is the time of years the money is invested or borrowed.

Step 2

Find the interest rate on Andy’s account:

The invested amount is $5,000 and the interest is compounded biweekly.

The aim is to know the rate of interest if Andy has $6,600 in his account after 5 years.

Here,

The principal amount is P = $5,000,

The future value of the investment loan including the loan is A = $6,600,

The number of times int...

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