The Spartan National Bank has agreed to lend you $30,000 today. In three years you must pay them $42,147. What is the annual rate of interest?
We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
42147=30,000*(1+r/100)^3
(42147/30,000)^(1/3)=(1+r/100)
(1+r/100)=1.12
r=1.12-1
=12%(Approx).
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