What is the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?
A) 5.64 percent
B) 7.69 percent
C) 10.17 percent
D) 11.32 percent

Question

Quizplus · Accepted Answer

The interest rate can be found using the formula for the present value of an annuity: $PV = PMT \times \left[\frac{1 - (1 + r)^{-n}}{r}\right]$, where PV is the present value, PMT is the annual payment, r is the interest rate per period, and n is the number of periods. Plugging in the given values ($14,000 for PV, $3,000 for PMT, and 6 for n) and solving for r requires trial and error or a financial calculator. The correct interest rate that satisfies this equation is approximately 7.69 percent.

What Is the Interest Rate of a 6-Year, Annual $3,000