Answer to Question #153035 in Financial Math for Mar

Question

In January 3, 2015 Mr.Adams took a loan - 5000,00 (~ 5 years ago)

Today is repayment day and repayment amount is 5420,00.

We need to calculate the rate of compound interest. (accuracy 0.001%) using English practice.

Answer 1

A = 5420.00 (A = P + I) (Total repayment amount)

P = 5000 (Principal amount)

n = 1 -> I consider the compound is annually

t = 5 years (time)

r = compound interest rate

 r = n[(A/P)^1/nt - 1]

r = 1 × [(5,420.00/5,000.00)^1/(1)(5) - 1]

r = 0.0162624

R = 1.62%

The interest rate required to get a total amount of $ 5,420.00 from compound interest on a principal of $ 5,000.00 compounded 1 times per year over 5 years is 1.626% per year.