Question

Find the interest rates earned on each of the following. Round each answer to two decimal places.

You borrow $660 and promise to pay back $693 at the end of 1 year.

___ %

You lend $660 and the borrower promises to pay you $693 at the end of 1 year.

___ %

You borrow $84,000 and promise to pay back $1,078,492 at the end of 14 years.

___ %

You borrow $8,000 and promise to make payments of $2,219.30 at the end of each year for 5 years.

___%

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

1.

693=660(1+r/100)^1

(693/660)^(1)=(1+r/100)

(1+r/100)=1.05

r=(1.05-1)*100

=5%

2.

693=660(1+r/100)^1

(693/660)^(1)=(1+r/100)

(1+r/100)=1.05

r=(1.05-1)*100

=5%

3.

1078492=84000(1+r/100)^14

(1078492/84000)^(1/14)=(1+r/100)

(1+r/100)=1.20

r=(1.20-1)*100

=20%

4.

Let interest rate be x%

At this rate;present value of payments=$8000

8000=2219.30/1.0x+2219.30/1.0x^2+.............+2219.30/1.0x^5

Hence x=interest rate=12%(Approx).