Answer:
Annual interest rate= 3.63%
Explanation:
<em>The rate of return earned on the investment can be worked out using the Future value of a lump sum formula. </em>
<em>The future value of a lump sum is the amount lump would amount to if interest is earned and compounded at a certain interest rate.
</em>
The formula is
FV = PV × (1+r)^(n)
PV = Present Value- 90,000
FV - Future Value, - 120,000
n- number of period- 8× 2 = 16 (note interest is compounded twice a year)
r- interest rate per period - ?
120,000 = 90,000× (1+r)^16
1+r)^16= 120.000/90,000= 1.333
(1+r)^16= 1.333
1+r= 1.333^(1/16)
r =1.333^(1/16) -1 = 0.01812
r =0.01812× 100= 1.812%
Bi-annual interest rate = 1.812%
Annual interest rate = Bi-annual rate × 2
Annual interest rate = 1.812% × 2 =3.63%
Annual interest rate= 3.63%
