Question

Problem 5-4 Calculating Interest Rates [LO3]

Solve for the unknown interest rate in each of the following (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.):

  

Present Value				Years		Interest Rate		Future Value
	$	260		3		%		$	307
		380		17					1,107
		41,000		18					185,586
		40,261		20					342,595

Answer 1

r = (FV / PV)^1/t – 1

r = ($307 / $260)^1/3 – 1 = 0.0570, or 5.70%

r = ($1,107 / $380)^1/17 – 1 = 0.0649, or 6.49%

r = ($185,586 / $41,000)^1/18 – 1 = 0.0875, or 8.75%

r = ($342,595 / $40,261)^1/20 – 1 = 0.1130, or 11.30%