Question

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

Present Value				Years			Interest Rate				Future Value
	$	785			4				%			$	1,521
		975			5								1,858
		22,000			16								148,832
		77,300			19								326,815

Answer 1

1.Information provided:

Present value= $785

Future value= $1,521

Time= 4 years

Interest rate is calculated by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

PV= -785

FV= 1,521

N= 4

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 17.98.

Therefore, the interest rate is 17.98%.

2. Information provided:

Present value= $975

Future value= $1,858

Time= 5 years

Interest rate is calculated by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

PV= -975

FV= 1,858

N= 5

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 13.76.

Therefore, the interest rate is 13.76%.

3. Information provided:

Present value= $22,000

Future value= $148,832

Time= 16 years

Interest rate is calculated by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

PV= -22,000

FV= 148,832

N= 16

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 12.69.

Therefore, the interest rate is 12.69%.

4. Information provided:

Present value= $77,300

Future value= $326,815

Time= 19 years

Interest rate is calculated by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

PV= -77,300

FV= 326,815

N= 19

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 7.88.

Therefore, the interest rate is 7.88%.

In case of any query, kindly comment on the solution.