Question

You’re trying to choose between two different investments, both of which have up-front costs of $59,000. Investment G returns $119,000 in five years. Investment H returns $179,000 in 9 years. Calculate the interest rate for Investments G and H.

Answer 1

Investment G = 15.06%

Investment H = 13.12%

Step-by-step explanation:

The future value of an investment with P = $59,000 for 't' years at an interest rate 'r' is given by:

`FV = P*(1+r)^t`

Investment G:

FV = $119,000

t = 5 years

`119,000 = 59,000*(1+r)^5\\\sqrt[5]{(119,000)/(59,000)} =(1+r)\\r= 1.1506-1 = 0.1506 = 15.06\%`

Investment H:

FV = $179,000

t = 9 years

`179,000 = 59,000*(1+r)^9\\\sqrt[9]{(179,000)/(59,000)}=(1+r)\\r= 1.1312-1 = 0.1312 = 13.12\%`