You deposit $500 into a savings account. You know that the future value will be $800...
You deposit $500 into a savings account. You know that the
future value will be $800 in four years
time. What is the annual interest rate you receive from the
bank?
Homework Answers
We are given
Present value of deposit=PV=$500
Future value of deposit=FV=$800
Time duration=n=4 years
Let the annual interest rate be i
We know that future value of a single cash flow is given by
FV=PV*(1+i)n
800=500*(1+i)4
(1+i)=(800/500)1/4=1.124683
i=0.124683 or 12.47%
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