Question

Bill Padley expects to invest $25,000 for 3 years, after which he wants to receive $32,375.00. What rate of interest must Padley earn?

Answer 1

8.99%

Step-by-step explanation:

The formula to calculate the rate of interest is:

r=(FV/PV)^1/n - 1

r= rate of interest

FV= future value= $32,375

PV= present value= $25,000

n= number of period of time= 3

Now, you can replace the values in the formula:

r=(32,375/25,000)^1/3-1

r=1.295^1/3-1

r=0.0899→8.99%

According to this, the rate of interest that Padley must earn is 8.99%.