1)Suppose you borrow from a bank $2,388

Finance Oct 27, 2020

1)Suppose you borrow from a bank $2,388.91 today (t=C). You agree to pay back $3,778.77 in 7 years (t=7). The interest rate (%) that the bank charge you _96. Input your answer without the % sign and round your answer to two decimal places. is closest to

Expert Solution

Today's value, PV = $2,388.91

Value to be paid back after 7 years, FV = $3,778.77

Loan period, n = 7

Let r be the interest rate charged by the bank

FV = PV X (1+r)ⁿ

3778.77 = 2388.91 X (1+r)⁷

(1+r)⁷ = 3778.77 / 2388.91 = 1.581797

1+r = 1.581797^(1/7) = 1.067702

r = 0.067702 = 6.77%

Answer is 6.77

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