Problem 5-34 Annuity Interest Rate (LG5-8) What's the interest rate of a 10-year, annual $3,100 annuity...

Question

Question

Problem 5-34 Annuity Interest Rate (LG5-8) Whats the interest rate of a 10-year, annual $3,100 annuity with present value of

Answer 1

Answer #1

PV = 20000

Payment received at end of each year = P = 3100

n = 10

=> PV = P/(1+r) + P/(1+r)² + ..... P/(1+r)ⁿ = P[1- (1+r)^-n]/r

=> 20000 = 3100[1- (1+r)^-10]/r

=> r = 8.88%

This can be calculated using excel IRR function

X fxRR(B89: B99) B100 А В С D Cash Flow 88 Year 89 0 -20000 90 1 3100 91 2 3100 92 3 3100 93 4 3100 94 5 3100 95 6 3100 96 7

Answer 2

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