Question

What annual simple interest rate will increase Johnson Alexander's initial investment of $10,000 to $12,000 in five years?

Answer 1

The rate for such investment is 4% per annum. This will be computed as follows: $12,000 (Future value of money) less $10,000 ( Present value of money) is equal to $2,000 which will be then divided by 5 years and the it will give us the value of $400 per year. Then $400 will be divided by the $10,000 ( Present value of money) which gives us 4%.