Question

EFFECTIVE RATE OF INTEREST

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

You borrow $750 and promise to pay back $780 at the end of 1 year.

%

You lend $750 and the borrower promises to pay you $780 at the end of 1 year.

%

You borrow $60,000 and promise to pay back $116,924 at the end of 7 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

HI

for the first question here

Present value = $750

Future value = 780

time n = 1

r=?

future value =present value *(1+r)^n

780 = 750*(1+r)^1

r=4% so you have paid on interest rate of 4%

same way second question

you have got interest rate of 4%

third question

116924=60000*(1+r)^7

r= 10% hence you will pay at interst rate of 10%

forth question

here PV =8000

payment PMT= -2219.3

time nper = 5

so we will use excel formula to find out the rate here

RATE(nper,PMT,PV) = RATE(5,-2219.3,8000) =12%

hence you will pay at the rate of 12%

Thanks