Annuity Interest Rate What's the interest rate of a 6-year, annual $3,000 annuity with present value of $14,000?
A) 5.64%
B) 7.69%
C) 10.17%
D) 11.32%

Question

Quizplus · Accepted Answer

To solve for the interest rate, we can use the formula for the present value of an annuity:

PV = PMT x ((1 - (1 + r)^-n) / r)

where PV is the present value of the annuity, PMT is the annual payment, r is the interest rate per year (in decimal form), and n is the number of years.

Plugging in the given values, we get:

14,000 = 3,000 x ((1 - (1 + r)^-6) / r)

Multiplying both sides by r and dividing by 3,000, we get:

r(1,000 / 3) = (1 - (1 + r)^-6)

We can then solve for r using trial and error or by using a financial calculator or spreadsheet. The interest rate that satisfies the equation is approximately 7.69%. Therefore, the best choice is (B).

Annuity Interest Rate What's the Interest Rate of a 6-Year