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Homework answers / question archive / If 12 years later, 888,024 yen has been received for the payment of a receivable amounting to 2,000,000 yen, then how much interest is the investment
If 12 years later, 888,024 yen has been received for the payment of a receivable amounting to 2,000,000 yen, then how much interest is the investment
We can use following Present Value/ Future value formula to calculate the annual interest rate
PV = FV / (1+R) ^n
Where,
Initial investment or Present Value PV = 888,024 yen
Future value of after 12 years; FV= 2,000,000 yen
Annual interest rate R =? (Assumed annual compounding)
Time period n = 12 years
Therefore,
888,024 = 2,000,000/ (1+R %) ^12
Or (1+R %) ^12 = 2,000,000/ 888,024 = 2.2522
Or (1+R %) = (2.2522) ^ (1/12) = 1.067
Or R = 1.067 – 1 = 0.067 or 6.70%
Therefore annual interest rate on this investment is 6.70%.
