The implied rate of interest is 4.00%
Explanation:
Principal (initial security worth)- $ 12,800
Final amount - $ 15,573.16
Time taken – 5 years
No additional deposition or withdrawal in between
∴ Rate of interest
This is the problem pertaining to compounding interest.
We know that for compound interest
Amount (A)= Principal(P)(1+R/100)ⁿ
Where R= rate of interest
N= time period
Thus, equation can be rearranged as
A/P=(1+R/100)ⁿ
Substituting the values of A, P and n as $15,573.16, $12800 and 5 years respectively
15573.16/12800=(1+R/100)⁵
Solving the above equation we would get R as 4%
