Annuity Interest Rate What is the interest rate of a 4-year,annual $1,000 annuity with present value of $3,500?
A)3.85 percent
B)5.56 percent
C)8.84 percent
D)9.70 percent

Question

Quizplus · Accepted Answer

To find the interest rate of the annuity, we first need to find the future value of the annuity at the end of the 4-year period.

$3,500 = $1,000 x ((1+i)^4 - 1)/i

where i is the annual interest rate.

Solving for i using trial and error or a financial calculator gives an interest rate of approximately 5.56%.

Therefore, the correct answer is B) 5.56 percent.

Annuity Interest Rate What Is the Interest Rate of a 4-Year,annual