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If you pay $1,000 for the privilege of receiving $199.25 for each of the next ten...

If you pay $1,000 for the privilege of receiving $199.25 for each of the next ten years, what interest rate are you earning on your money?

15%

10%

11%

21%
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Answer #1

Let interest rate be x%

At this rate;present value of inflows=1000

1000=199.25/1.0x+199.25/1.0x^2+...............+199.25/1.0x^10

Hence x=interest rate=15%

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