Question

Ivanhoe Company purchased a machine at a price of $109,300 by signing a note payable, which requires a single payment of $132,253 in 2 years. Click here to view factor tables Assuming annual compounding of interest, what rate of interest is being paid on the loan? (Round answer to 0 decimal places, e.g. 13%.) Rate of interest

Answer 1

Ans: Present value = Future value * 100 (1+r)^2 (1+r)^2 = Future value * 100 Present value (1+r)^2 = $132,253 * 100 $109,300 (1+r)^2 = 1.21 * 100 (1+r)^2= 121 (1+r) = 121-1/2 (Square root of 121) (1+r) = 11 % r= (11 - 1) r = 10%

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