Question

What’s the interest rate of a 8-year, annual $3,600 annuity with present value of $20,000? (Use a time value of money calculator or a spreadsheet. Round your answer to 2 decimal places.)

Answer 1

we need to use present value of annuity formula
	= P [1-(1+r)^-n]/r
	Where,
	r= interest rate per period
	P= periodic payment i.e. $36000
	n= number of period i.e. 8 Years
	$ 20000 = 3600[1-(1+r)^-8]/r
	$20000/3600 = [1-(1+r)^-8]/r
	5.5556* r = 1-(1+r)^-8
	r= 8.90%
	Therefore inerest rate is 8.90%