1. Find Interest Rate i = ?
Present value C = 1000, Time n = 3 Year, Future value FV = 1331,
Interest compounded = Year (1/year)
for Future value using Compound Interest method
Solution:
C=1000
n=3 years (Number of periods)
FV=1331 (Future value)
Now, Future value (Compound Interest) formula is
FV=C*(1+i)^n
:.1331=1000*(1+i)^3
:.(1331)/(1000)=(1+i)^3
:.(1+i)^3=1.33
:.(1+i)=1.33^(1/3)
:.(1+i)=1.1
:.i=1.1-1
:.i=0.1
:.i=10 % per year
2. Find Interest Rate i = ?
Present value C = 5000, Time n = 2 Year, Future value FV = 6050,
Interest compounded = Year (1/year)
for Future value using Compound Interest method
Solution:
C=5000
n=2 years (Number of periods)
FV=6050 (Future value)
Now, Future value (Compound Interest) formula is
FV=C*(1+i)^n
:.6050=5000*(1+i)^2
:.(6050)/(5000)=(1+i)^2
:.(1+i)^2=1.21
:.(1+i)=1.21^(1/2)
:.(1+i)=1.1
:.i=1.1-1
:.i=0.1
:.i=10 % per year
This material is intended as a summary. Use your textbook for detail explanation.
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