Question

Find the interest rates earned on each of the following. Round each answer to two decimal places.

1. You borrow $700 and promise to pay back $742 at the end of 1 year.

   %

2. You lend $700 and the borrower promises to pay you $742 at the end of 1 year.

   %

3. You borrow $73,000 and promise to pay back $96,064 at the end of 7 years.

   %

4. You borrow $14,000 and promise to make payments of $3,693.20 at the end of each year for 5 years.

   %

Answer 1

Answer a.

Amount borrowed = $700
Amount repaid = $742
Period = 1 year

Using financial calculator:
N = 1
PV = 700
PMT = 0
FV = -742

I = 6%

Annual interest rate = 6.00%

Answer b.

Amount lend = $700
Amount repaid = $742
Period = 1 year

Using financial calculator:
N = 1
PV = -700
PMT = 0
FV = 742

I = 6%

Annual interest rate = 6.00%

Answer c.

Amount borrowed = $73,000
Amount repaid = $96,064
Period = 7 years

Using financial calculator:
N = 7
PV = 73000
PMT = 0
FV = -96064

I = 4%

Annual interest rate = 4.00%

Answer d.

Amount borrowed = $14,000
Amount payment = $3,693.20
Period = 5 years

Using financial calculator:
N = 5
PV = 14000
PMT = -3693.20
FV = 0

I = 10%

Annual interest rate = 10.00%