Computation of Annual Interest Rate that Paul Earned using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Annual Interest Rate = ?

Nper = 5 Years

PMT = 0

PV = $1,000

FV = $1,600

Substituting the values in formula:

=rate(5,0,-1000,1600)

Rate or Annual Interest Rate = 9.86%

So, Annual Interest Rate that Paul Earned is 9.86%.

 

 

 

Computation of Annual Interest Rate that Trek Earned using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Annual Interest Rate = ?

Nper = 4 Years

PMT = 0

PV = $1,200

FV = $1,600

Substituting the values in formula:

=rate(4,0,-1200,1600)

Rate or Annual Interest Rate = 7.46%

So, Annual Interest Rate that Trek Earned is 7.46%.

 

 

3) 

Computation of Value of Paul Investment 1 Year ago using FV Function in Excel:

=fv(rate,nper,pmt,-pv)

Here,

FV =  Value of Paul Investment 1 Year ago = 

Rate = 9.86%

Nper = 5-1 = 4 years 

PMT = 0

PV = $1000

Substituting the values in formula:

=fv(9.86%,4,0,-1000)

FV =  Value of Paul Investment 1 Year ago = $1,456.66

 

Computation of Value of Trek Investment 1 Year ago using FV Function in Excel:

=fv(rate,nper,pmt,-pv)

Here,

FV =  Value of Paul Investment 1 Year ago = 

Rate = 7.46%

Nper = 4-1 = 3 years 

PMT = 0

PV = $1200

Substituting the values in formula:

=fv(7.46%,3,0,-1200)

FV =  Value of Paul Investment 1 Year ago = $1,489.09

 

No, Trek's investment is worthy by $32.43($1,489.09-$1,456.66) than Paul one year ago.