Q no 6:

Vernal Equinox wishes to borrow $ 10000 for three years. A group of individuals agree to lend him this amount if he contracts to pay them $ 16000 at the end of the three years. What is the implicit compound annual interest rate implied by this contract ( to the nearest whole present)?

Solution:

P.V = 10000

F.V = 16000

n = 3 years

r =?

F.V = P.V(1+r)ⁿ

16000 = 10000(1+r)³

1.6^1/3 = (1+r)

r = 16.96%