Question

Maggie deposits $10,000 today and is promised a return of $17,000 in eight years. What is the implied annual rate of return? A. 6. 86 percent B. 7. 06 percent C. 5. 99 percent D. 6. 07 percent

Answer 1

Answer:

A. 6,86%

Explanation:

We use the formula present value to future value and we clear the interest:

Present value(PV)=future value (FV)/ (1+interest(i))^number of periods(n)

PV=FV/(1+i)^n

(1+i)^n=FV/PV

(1+i)=(FV/PV)^(1/n)

i=((FV/PV)^(1/n))-1

For this problem:

i=(($17,000/$10,000)^(1/8))-1

i=0,6857

i= 6,86%