What is the interest rate on a three-year investment with a future value of $1000 and a present value of $863.84?

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03-02-2018
Business

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What is the interest rate on a three-year investment with a future value of $1000 and a present value of $863.84?

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mathmate mathmate · Answer 1 · 2018-02-07T13:29:47+01:00

mathmate mathmate

07-02-2018

Use
[tex]F=P(1+i)^n[/tex]

Substituting
F=1000, P=863.84, n=3
solve for i
[tex]1000=863.84^(1+i)^3[/tex]
solving for i
=>
[tex]i=(\frac{1000}{863.84})^{\frac{1}{3}}-1[/tex]
=0.0500

Answer: the annual interest rate is 5%

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