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? 4.00% 0.19% 3.20% 7.60%

Answer 1

Answer:

i=4%

Explanation:

this problem is possible to solve applying the principle of future value, keep in mind the next formula:

$FV=PV*(1+i)^{n}$

where FV is future value, PV is the present value, i is the periodic interest rate and n is the number of periods. So applying to this particular problem we have:

$16,843.93=12,800*(1+i)^{7}$

the difference here is that we must solve n so we can do:

$(\frac{16,843.93}{12,800})^{1/7}-1=i$

so i=4%