Question

Brief Exercise A-18 If Colleen Mooney invests $9,610.38 now and she will receive $18,000 at the end of 16 years, what annual rate of interest will Colleen earn on her investment? (Hint: Use Present value of 1 factor table.) (Round answer to 0 decimal places, e.g. 25%.) Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Annual rate of interest

Answer 1

Present value = $9,610.38

Future value = $18,000

time (n) = 16 years

Interest rate (i) = ?

Present value = Future value x Present value factor ( i%,n)

9,610.38 = 18,000 x  Present value factor (i%,16)

Present value factor (i%,16) = 9,610.38/18,000

= 0.53391

Present value factor of 0.53391 can be located in the Present Value of $1 factor table in year 16 row.

In the year 16 row, factor value 0.53391 lies in the interest rate of 4% column.

Hence, Annual rate of interest = 4%

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