Question

The present value of $1541 received 2 years into the future is $1320. What is the interest rate? Express the answer in percentages.

A) 5%
B) 8%
C) 10%
D) 12%

Answer 1

The present value of $1541 received 2 years into the future is $1320. The interest rate is approximately 8.07%.

Step-by-step explanation:

The present value of $1541 received 2 years into the future is $1320.

To find the interest rate, we can use the formula for present value:

Present Value = Future Value / (1 + Interest Rate)^n

Plugging in the given values, we have:

$1320 = $1541 / (1 + Interest Rate)^2

Solving for the interest rate:

(1 + Interest Rate)^2 = $1541 / $1320

(1 + Interest Rate)^2 = 1.1689

Taking the square root of both sides:

1 + Interest Rate = 1.0807

Interest Rate = 1.0807 - 1 = 0.0807 = 8.07%

Therefore, the interest rate is approximately 8.07%.