If you pay $1,000 for the privilege of receiving $199.25 for each of the next ten years, what interest rate are you earning on your money?
15% |
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10% |
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11% |
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21% |
Let interest rate be x%
At this rate;present value of inflows=1000
1000=199.25/1.0x+199.25/1.0x^2+...............+199.25/1.0x^10
Hence x=interest rate=15%
If you pay $1,000 for the privilege of receiving $199.25 for each of the next ten...
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