Question

Finding the interest rate and the number of years

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 of $4,000 will be worth $4,867 five years in the future, assuming that no additional deposits or withdrawals are made, what is the implied interest rate the investor will earn on the security?

2.40%

3.00%

4.00%

4.80%

If an investment of $40,000 is earning an interest rate of 7.50% compounded annually, it will take 1.8 years   for this investment to grow to a value of $71,339.11—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?

It takes 14.2 years for $500 to double if invested at an annual rate of 5%.

It takes 10.5 years for $500 to double if invested at an annual rate of 5%.

Answer 1

If a security of $4,000 will be worth $4,867 five years in the future, assuming that no additional deposits or withdrawals are made, what is the implied interest rate the investor will earn on the security?

=(4867/4000)^(1/5)-1=4.00%

If an investment of $40,000 is earning an interest rate of 7.50% compounded annually, it will take 1.8 years for this investment to grow to a value of $71,339.11—assuming that no additional deposits or withdrawals are made during this time?

Time taken to become 71339.11=log(71339.11/40000)/log(1+7.5%)=8

Which of the following statements is true, assuming that no additional deposits or withdrawals are made?

=log(2)/log(1+5%)=14.20669908

It takes 14.2 years for $500 to double if invested at an annual rate of 5%.