Question

On this date last year, you borrowed $3,900. You have to repay the loan with a lump sum payment of $6,000 six years from now. What is the interest rate?

Answer 1

Answer:

Interest Rate=0.0635=6.35%

Explanation:

Given Data:

Money Borrowed last year=PV=$3,900

Future Payment as a lump sum payment=FV=$6,000

Total Number of years=n=7 years

Required:

Interest Rate=i=?

Solution:

Formula:

$FV=PV(1+i)^n$

In our case, FV=$6,000, PV=$3,900, n=7

$i=(\frac{FV}{PV})^{1/n}-1\\i=(\frac{6000}{3900})^{1/7}-1\\ i=0.0635$

Interest Rate=0.0635=6.35%