Answered: A deposit of $1300 will be after 3…

A deposit of $1300 will be after 3 years $1639. If the interest is compounded annually, what is the annual interest rate: a. 10.25% O b. 8.02% C. 6% d. 8.5%

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

A deposit of $1300 will be after 3 years $1639. If the interest is compounded annually, what is the annual interest rate:
a. 10.25%
b. 8.02%
c. 6%
d. 8.5%

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