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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem

If $90,000 is invested in a fund on December 31, 2019, and 5 equal annual withdrawals of $23,138.32 are made starting on December 31, 2020, that will deplete the fund, what is the interest rate being earned if interest is compounded annually?

To determine

Determine the interest rate at which the interest being earned from the fund investment.

Explanation

Interest:

Interest is the cost of borrowing money, in other words Interest is the amount charged on the principal value of the money borrowed for the privilege of borrowing money. Interest is to be paid by the borrower and to be received by the lender.

Determine rate of interest, if interest is compounded annually.

Present valueO= Cash flow ×(pOn,i)$90,000= $23,138.52×(pOn=5,i=?)(pOn=5,i=?)=$90,000$23,138

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