Question

Stanley Roper has $2,300 that he is looking to invest. His brother approached him with an investment opportunity that could give Patrick $4,800 in 4 years. What interest rate would the investment have to yield in order for Stanley’s brother to deliver on his promise? (Answer needs to be stated as a decimal. For example: .1192) Round to four decimal places.

Answer 1

Answer:

20.19%

Explanation:

The computation is shown below:

As we know that

Future value = Present value × (1 + rate)^number of years

where,

Present value = $2,300

Future value = $4,800

Time period = 4 years

So, the interest rate is

$4,800 = $2,300 × (1 + rate)^4

2.086957 = (1 + rate)^4

So after solving this, the interest rate is 20.19%