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Calculate the Annual Percentage Rate (APR) for Compound Interest Investments
Tom Selleck invested $3000 into an account four years ago. Today his account has grown to have a balance of $3927. Given that his account offered monthly compounding of interest, the APR on this account is closest to: A) 4.25% B) 5.75% C) 6.75% D) 7.1% E) None of the above

To calculate the annual percentage rate (APR) for Tom Selleck's investment account, we can use the formula for compound interest. The formula to find the annual percentage rate (APR) for a compounded amount is:

[ A = P \left(1 + \frac{r}{12} \right)^n ]

Where: - ( A ) is the future value of the investment, - ( P ) is the principal amount (initial investment), - ( r ) is the annual interest rate (decimal), - ( n ) is the number of compounding periods, which in this case is 12 for monthly compounding.

Given: [ A = $3927 ] [ P = $3000 ] [ n = 12 \times 4 = 48 ] (since the investment compounded monthly for 4 years)

We rearrange the formula to solve for the annual interest rate (( r )):

[ r = \left( \frac{A}{P} \right)^\frac{1}{n} - 1 ]

Plugging in the numbers:

[ r = \left( \frac{$3927}{$3000} \right)^\frac{1}{48} - 1 ]

[ r ≈ 0.0667 ]

So, the annual percentage rate is approximately 6.67%. Therefore, the closest answer is C) 6.75%.