You have been told that you need $21,600 today in order to have $100,000 when you retire 42 years from now. what rate of interes
t was used in the present value computation? assume interest is compounded annually.
1 answer:
You will have to use this formula:
<span>log(1 + rate) = {log(total) -log(Principal)} ÷ Years
</span>log(1 + rate) = {log(100,000) -log(21,600)} <span>÷ </span><span>Years
</span>log(1 + rate) = { 5 -4.3344537512} / Years
log(1 + rate) =
<span>
<span>
<span>
{ 0.6655462488} / 42
</span></span></span>log(1 + rate) =
<span>
<span>
<span>
0.0158463393
</span>
</span>
</span>
1 + rate = 10^<span>
<span>
0.015846339
</span></span><span>1 + rate = </span>1.0371613856
rate = .0371613856<span>
rate = </span><span>3.71613856%
</span>************************************************************************
Double-Check
Total = principal * (1 +rate)^years
Total = 21,600 * (<span>1.0371613856)^42
</span>
<span>Total = 21,600 * </span>
<span>
<span>
<span>
4.6296296291
</span>
</span>
</span>
<span><span>
</span>
</span>
Total = 100,000
Correct !!
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