Question

g What’s the interest rate of a 5-year, annual $4,900 annuity with present value of $20,000? (Use a time value of money calculator or a spreadsheet. Round your answer to 2 decimal places.)

Answer 1

Answer:

Interest rate of annuity is 7.17%

Explanation:

A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.

Formula for Present value of annuity is as follow

PV of annuity = P x [ ( 1- ( 1+ r )^-n ) / r ]

$20,000 = $4,900 x [ ( 1- ( 1+ r )^-5 ) / r ]  

r = 7.17%

Interest rate is 7.17%