Present Value of 1 Future Value of 1 Present Value of an Annuity of 1 Future Value of an Annuity of 1 What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?
A)5%
B)8%
C)10%
D)12%
E)15%

Question

Present Value of 1  Future Value of 1  Present Value of an Annuity of 1  Future Value of an Annuity of 1  What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?
A)5% 
B)8% 
C)10% 
D)12% 
E)15%

Quizplus · Accepted Answer

We can use the formula for future value of a single amount:

FV = PV x (1 + r)^n

where FV is the future value, PV is the present value, r is the interest rate, and n is the number of compounding periods.

Substituting the given values, we get:

6,802.50 = 5,000 x (1 + r)^4

Dividing both sides by 5,000 and taking the fourth root of both sides, we get:

(1 + r) = (6,802.50 / 5,000)^(1/4)
(1 + r) = 1.08

Subtracting 1 from both sides, we get:

r = 0.08 = 8%

Therefore, the required interest rate is 8%. The answer is B.