Answer:
Present face value (PV) =$1,000
Future face value (FV) = $2,000
Number of years (n) = 12 years
Interest rate = ?
FV = PV(1 + r)n
$2,000 = $1,000(1 + r)12
$2,000 = (1 + r)12
$1,000
2 = (1 + r)12
12√2= 1 + r
1.0595 = 1 + r
1.0595 - 1 = r
r = 0.0595
r = 5.95% = 6%
Explanation:
In this case, we will apply the formula for future value of a lump sum, which equals present value multiplied by 1 plus interest rate raised to power number of years. The future value, present value and number of years were provided with the exception of interest rate. Thus, interest rate is made the subject of the formula.
