Question

Joanne Quick made an investment of $23,016.97. From this investment, she will receive $2,600 annually for the next 13 years starting one year from now. Click here to view the factor table Future Value of 1 Click here to view the factor table Future Value of an Annuity of 1 Click here to view the factor table Present Value of 1 Click here to view the factor table Present Value of an Annuity of 1 (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What rate of interest will Joanne’s investment be earning for her? (Hint: Use Table 4.) (Round answer to 0 decimal places, e.g. 25%.)

Rate of interest ________%

Answer 1

This problem is related to Ordinary Annuity. Ordinary Annuity is the series of equal payment or receipt for a spwciffied period of time. The paymentor receipt will happen at the end of the fixed internal.

Here,

Annuity receipt = $2,600 which receive at the end of period in one year interval.

Investment Value = Present Value of Ordinay Annuity = $23,016.97

Number of pyment = 13

Present Value of Ordinary Annuity = Annual Receipt x Present Value Ordinary annuity factor at R% for 13 period

$23,016.97 = $2,600 x PVIFA (R%, 13)

PVIFA (R%, 13) = $23,016.97 / $2,600 = 8.85268

Now, we need to see the pv ordinary annuity factor table at 13 period time at which the value comes 8.85268

The Rate of Interest at which the value 8.85268 for 13 period time is 6%

At 6% rate of interest for 13 period of time we will get value 8.85268..

So the answer is 6%