1. Find Interest Rate i = ?
Present value C = 1000, Time n = 3 Year, Future value FV = 1300,
for Present value using Simple Interest methodSolution:C=1000n=3 years (Number of periods)
FV=1300 (Future value)
Now, Future value (Simple Interest) formula is
FV=C⋅(1+i⋅n)∴1300=1000⋅(1+i⋅3)∴13001000=(1+i⋅3)∴1.3=1+i⋅3∴1.3-1=i⋅3∴0.3=i⋅3∴0.33=i∴i=0.1∴i=10% per year
2. Find Interest Rate i = ?
Present value C = 5000, Time n = 2 Year, Future value FV = 6000,
for Present value using Simple Interest methodSolution:C=5000n=2 years (Number of periods)
FV=6000 (Future value)
Now, Future value (Simple Interest) formula is
FV=C⋅(1+i⋅n)∴6000=5000⋅(1+i⋅2)∴60005000=(1+i⋅2)∴1.2=1+i⋅2∴1.2-1=i⋅2∴0.2=i⋅2∴0.22=i∴i=0.1∴i=10% per year
This material is intended as a summary. Use your textbook for detail explanation.
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