How to Solve Interest Rate Problems

In interest rate problems, you are typically presented with the starting amount, an ending amount and the time period. When you have a time period comprising multiple years, you need to take into consideration the interest compounding over the years when finding the interest rate. Being able to find the interest rate will help you compare the performance of different accounts.

Step 1

Subtract the final value of the account from the amount that was originally put in the account. For example, if the account started with $500 and grew to $650 over four years, you would subtract $500 from $650 to get $150.

Step 2

Divide the increase by the original amount. In this example, you would divide $150 by $500 to get 0.3.

Step 3

Add 1 to the step 1 result. In this example, you would add 1 to 0.3 to get 1.3.

Step 4

Divide 1 by the number of years the money remained in the account. In this example, since the money remained in the account for four years, you would divide 1 by 4 to get 0.25.

Step 5

Raise the step 3 result to the power of step 4. Continuing the example, you would raise 1.3 to the 0.25th power to get 1.067789972.

Step 6

Subtract 1 from step 5 result to find the annual interest rate. Finishing this example, you would subtract 1 from 1.067789972 to get 0.067789972, meaning the annual interest rate is about 6.78 percent.

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