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11 September, 14:22

g What's the interest rate of a 5-year, annual $4,900 annuity with present value of $20,000? (Use a time value of money calculator or a spreadsheet. Round your answer to 2 decimal places.)

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  1. 11 September, 16:39
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    Interest rate of annuity is 7.17%

    Explanation:

    A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.

    Formula for Present value of annuity is as follow

    PV of annuity = P x [ (1 - (1 + r) ^-n) / r ]

    $20,000 = $4,900 x [ (1 - (1 + r) ^-5) / r ]

    r = 7.17%

    Interest rate is 7.17%
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