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Math Help - exponential word problem

  1. #1
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    exponential word problem

    Hi I have no idea where to start for this problem.
    Much help is needed, thanks in advance.

    In 1930, the bluenose stamp could be bought for 50 cents. In 1987, the same stamp was sold at an auction for 500 dollars. What annual rate of interest corresponds to an investment of 50 cents in 1930 which grew to 500 dollars in 1987
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  2. #2
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    Hello, ferken!

    In 1930, the bluenose stamp could be bought for 50 cents.
    In 1987, the same stamp was sold at an auction for 500 dollars.
    What annual rate of interest corresponds to an investment of 50 cents in 1930
    which grew to 500 dollars in 1987
    This is a compound interest problem.

    Formula: . A \;=\;P(1+r)^n . where: . \begin{Bmatrix}P &=& \text{Principal invested} \\ r &=& \text{periodic interest rate} \\ n &=& \text{number of periods} \\ A &=& \text{Final value} \end{Bmatrix}


    We have: . P = \$0.50,\;A = \$500,\;n = 57

    The formula becomes: . 0.50(1 + r)^{57} \:=\:500 \quad\Rightarrow\quad (1 + r)^{57} \:=\:1000

    . . 1 + r \:=\:1000^{\frac{1}{57}} \;=\;1.128837892 \quad\Rightarrow\quad r \:=\:0.128837892


    Therefore: . r \;\approx\;12.9\%

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