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

Question

6. 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 $2,000 will be worth $4,421.36 seven 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 12.00% 9.60% 0 2.21% o 4.52% If an investment of $40,000 is earning an interest rate of 4.00%, compounded annually, then it will take for this investment to reach a value of $50,612.76-assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true-assuming that no additional deposits or withdrawals are made? O It takes 14.21 years for $500 to double if invested at an annual rate of 5%. 0 It takes 10.50 years for $500 to double if invested at an annual rate of 5%.

Explanation / Answer

1) The Answer is "A"

A.12%

Current Value of Security = $2000

Value after 7 year = $4421.36

Implied Interest Rate = (($4421.36 / $2000)^(1/7)) - 1

= ((2.21068)^(1/7)) - 1

= 1.12 - 1

= 12%

2)

3)

According to 72 Rule that is interest multiplied by number of year should be 72 to deouble the

value.

at 5% interest rate total number of year required = 72 / 5

= 14.40

Particulars Amount($) Investment Value 40000 Future Value 50612.76 Annual Interest Rate 4% Number of Year 6 year

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