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29 September, 01:34

Suppose an investment broker offers to sell you a financial asset for $850. You will receive only one payment of $1,000 five years from now. What interest rate would you earn if you bought the financial asset at the offer price

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Answers (2)
  1. 29 September, 01:45
    0
    0.035%

    Explanation:

    Using the formula for calculating simple interest.

    Simple interest = Principal * Rate * Time/100

    Since Amount = Principal + Interest

    Interest = Amount - Principal

    Interest = $1000 - $850

    Interest = $150

    If time = 5years

    Principal = $850

    To get the interest rate, we will substitute the given data into the simple interest formula to have;

    $150 = ($850*Rate*5) / 100

    Cross multiplying

    $15,000 = 425000*rate

    Interest Rate = 15000/425000

    Interest rate = 0.035%
  2. 29 September, 01:56
    0
    The interest rate is 0.06%

    Explanation:

    Step one:

    Given data

    final amount $1,000

    initial principal balance $850

    annual interest rate=?

    time (in years) = 5 years

    Step two:

    Applying the

    Simple interest/Formula

    A = P (1 + rt)

    A = final amount

    P = initial principal balance

    r = annual interest rate

    t = time (in years)

    Plugin our data into the formula We have

    1000=850 (1+r*5)

    1,000=850 (1+5r)

    Opening bracket we have

    1,000=850+4,250r

    Colleting like terms we have

    1000-850=4250r

    250=4,250r

    Dividing both sides by 4,250 we have

    r=250/4250

    r=0.058

    Hence the interest rate is 0.06%
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