Question

The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $12,800 will be worth $16,843.93 seven years in the future, what is the implied interest rate the investor will earn on the security—assuming that no additional deposits or withdrawals are made? 3.20% 1.32%

Answer 1

Answer:

r = 4% at this rate a principal of 12,800 returns 16,843.93 in seven years

Explanation:

We will calculate the interest rate at which a principal of 12,800 return 16,843.93 in seven years

$Principal \: (1+ r)^{time} = Amount$

Principal 12,800

time 7 years

rate         ?

Amount 16,843.93

$12800 \: (1+ r)^{7} = 16,843.93$

$(1+r)^{7} = 16,843.93\div12,800\\\\r =\sqrt[7]{16,843.93\div12,800} -1$

r = 0.0400

r = 4%