Question

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?

Answer 1

Answer:

The implied interest rate will be 4%

Explanation:

We need to check for the annual rate that generate the interest over the next seven years that makes $12,800 become $16,843.93:

$principal * (1 + rate)^{7} = future value$

We replace with our know values

12,800 x (1+rate)^7   = 16,843.93

16,843.93 /12,800    =  (1+rate)^7

sq7 (16,843.93/12,800) - 1 = rate

And know we find out the unknow value

rate = 0,03999994  =  0.04  = 4%