Question

Solve for the unknown interest rate in each of the following: (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Present Value Years Interest Rate Future Value
$770 5 % $ 1,491
960 6 1,828
20,500 17 147,332
75,800 20 323,815

Answer 1

Answer and Explanation:

For computing the unknown interest we need to apply the RATE formula which is shown below:

For case 1

Given that

Present value = $770

Future value or Face value = $1,491

PMT = $0

NPER = 5 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula, the interest rate is 14.13%

For case 2

Given that

Present value = $960

Future value or Face value = $1,828

PMT = $0

NPER = 6 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula, the interest rate is 11.33%

For case 3

Given that

Present value = $20,500

Future value or Face value = $147,332

PMT = $0

NPER = 17 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula, the interest rate is 12.30%

For case 4

Given that

Present value = $75,800

Future value or Face value = $323,815

PMT = $0

NPER = 20 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula, the interest rate is 7.53%