Question

Today, you invest $3,000 in an investment that will pay $6,000 in 7 years. What is the implied rate of interest?

Answer 1

Future Value = $6000

present value = $3000

Number of years = 7

Future Value = Present Value * (1+ interest rate)^Number of years

6000 = 3000 * (1+i%)^7

6000/3000 = (1+i%)^7

2 = (1+i%)^7

2^(1/7) = (1+i)

1.10408951367 = (1+i)

i = 1.10408951367 -1

i = 0.10408951367

In percentage, 0.10408951367 * 100

= 10.408951367%

So, The Implied rate of interest is 10.4089% [ Annually]