7. Finding the interest rate and the number of years Aa Aa The future value and

Question

7. Finding the interest rate and the number of years Aa Aa The future value and present value equations also help in finding the interest rate and the number of years that correspond to present and future value calculations. If a security currently worth $9,200 will be worth $13,517.82 five years in the future, what is the implied interest rate the investor will earn on the security-assuming that no additional deposits or withdrawals are made? O 6.81% O 6.40% O 1.47% O 8.00% If an investment of $50,000 is earning an interest rate of 8.00%, compounded annually, then it will take for this investment to reach a value of $79,343.72-assuming that no additional deposits or withdrawals are made during this time. Session Timeout 12 ARRAY HUB TECH-1 Type here to search

Explanation / Answer

1.

Future value/ Present value

= $13517.82/ $9200

= 1.4693

Looking at the future value table for 5 years we find that 1.4693 is at 8%.

Hence ans is 8.00%

Last option is correct.

2.

Number of periods = ln(FV/PV) / ln(1+r)

= [ln($79343.72/ $50000)] / [ln (1+0.08)]

= 6

It will take 6 years for this investment to reach a value of $79343.72

3. Future value of $1 at the end of 82.3753 years at interest rate of 15% will be = $1 x (1+0.15)82.3753

= $100000

First option is correct.

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