Solve for the unknown interest rate in each of the following (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)):

Solve for the unknown interest rate in each of the following (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)):

 

Present Value				Years		Interest Rate		Future Value
	$	330		4		%		$	422
		450		18					1,571
		48,000		19					266,917
		47,261		25					803,425

Explanation:

We can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is:

 

FV = PV(1 + r)t

Solving for r, we get:

r = (FV / PV)1 / t – 1

  

FV = $422 = $330(1 + r)4;		r = ($422 / $330)1/4 – 1	=	0.0634, or 6.34%
FV = $1,571 = $450(1 + r)18;		r = ($1,571 / $450)1/18 – 1	=	0.0719, or 7.19%
FV = $266,917 = $48,000(1 + r)19;		r = ($266,917 / $48,000)1/19 – 1	=	0.0945, or 9.45%
FV = $803,425 = $47,261(1 + r)25;		r = ($803,425 / $47,261)1/25 – 1	=	0.1200, or 12.00%

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

Enter

4

$330

±$422

N

I/Y

PV

PMT

FV

Solve for

6.34%

Enter

18

$450

±$1,571

N

I/Y

PV

PMT

FV

Solve for

7.19%

Enter

19

$48,000

±$266,917

N

I/Y

PV

PMT

FV

Solve for

9.45%

Enter

25

$47,261

±$803,425

N

I/Y

PV

PMT

FV

Solve for

12.00%