Question

Solve the following IN EXCEL

1.)What is the annuity that I have to pay for 5 years, to have B / .15,000.00 at an interest rate of 25%

2.) With a nominal rate of 21% what would be the Effective Rate of 10 years, knowing that we must buy the equipment.

Answer 1

FV Annuity in excel = FV( Rate,NPER,PMT)

Rate = Int rate

NPER = No. of Periods

PMT = Amount each year.

However in the given problme we need to consider PMT on;y and

FV of Annuity = CF [ (1+r)^n -1 ] / r

15000 = CF [ ( 1 + 0.25)^5 - 1 ] / 0.25

= CF [ ( 1.25)^5 - 1 ] / 0.25

= CF [ 3.0518 - 1 ] / 0.25

= CF [ 2.0518 ] / 0.25

CF = 15000 * 0.25 / 2.0518

= $ 1827.70

Part 2:

Effective Rate = (1+r)^n -1

= (1+0.21)^10 - 1

= [ 1.21^ 10 ] - 1

= 6.7275 - 1

= 5.7275 i.e 572.75%

Pls do rate, if the answer is correct and comment, if any further assistance is required.