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"If Alvin invests $5,500 today in a savings account, the money will grow to $8,500 at the end of Year 4. Assuming that the interest is paid once per year, the effective annual rate of the investment is _____."

Respuesta :

Answer:

i= 11,49%

Explanation:

For this problem you must use the formula present value to future value and clear the interest (i):

Present value(PV)=future value (FV)/ (1+interest(i))^number of periods(n)

PV=FV/(1+i)^n

(1+i)^n=FV/PV

(1+i)=(FV/PV)^(1/n)

i=((FV/PV)^(1/n))-1

For this problem:

Present value (PV)= $5,500

Future value (FV)= $8,500

number of periods (n) = 4 years

i=(($8,500/$5,500)^(1/4))-1

i=0,1149

Effective annual rate= 11,49%  

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