Question

For the following annuity due, determine the nominal annual rate of interest. Term Future Value Present Value $2,581 Periodic Rent $540 Payment Period Conversion Period monthly 1 year 4 years %. The nominal annual rate of interest is (Round to two decimal places as needed.)

Answer 1

Solution:

Calculation of Annual interest rate:

Future value=Periodic rent*[(1+interest rate)^no. of year-1]

$2581=$540*[(1+interest rate)^4-1]

4.7796=[(1+interest rate)^4-1]

Interest rate=0.1150 or 11.50% or 12%

You can also take the help of aannuity table to find the interest rate for annuity value of 4.7796.