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? 3.20% 1.32%

Answer 1

r = 4% at this rate a principal of 12,800 returns 16,843.93 in seven years

Step-by-step explanation:

We will calculate the interest rate at which a principal of 12,800 return 16,843.93 in seven years

`Principal \: (1+ r)^(time) = Amount`

Principal 12,800

time 7 years

rate ?

Amount 16,843.93

`12800 \: (1+ r)^(7) = 16,843.93`

`(1+r)^(7) = 16,843.93/12,800\\\\r =\sqrt[7]{16,843.93/12,800} -1`

r = 0.0400

r = 4%