Question

Suppose Bank One offers a certificate of deposit that pays $5,000 in four years for exchange for $4,000 today. What interest rate is Bank One offering?"

Answer 1

Answer:

Bank One is offering a simple interest rate of 6.25% per annum.

Step-by-step explanation:

Given that Bank One offers a certificate of deposit that pays $ 5,000 in four years for exchange for $ 4,000 today, to determine what interest rate is Bank One offering the following calculation must be performed:

(5000 - 4000) / 4 = X

1000/4 = X

250 = X

4000 = 100

250 = X

250 x 100/4000 = X

25000/4000 = X

6.25 = X

Therefore, Bank One is offering a simple interest rate of 6.25% per annum.