- NUMERICAL SOLUTION
Use Equation 2-1 to solve for i:
Therefore, the interest rate is 5 percent.
- FINANCIAL CALCULATOR SOLUTION
Inputs: 5 78.35 0 100
Output: 5.0
Enter N 5, PV 78.35, PMT 0, and FV 100, and then press I to get I 5%.
This procedure is easy, and it can be used for any interest rate or for any value of n, in-
cluding fractional values.
- SPREADSHEET SOLUTION
i0.055%.
1 i1.050
1 i(1.276)(1/5)
(1i)^5 1.276
$100
$78.35
(1i)^5
$100$78.35(1i)^5
68 CHAPTER 2 Time Value of Money
Most spreadsheets have a built-in function to find the interest rate. In Excel,you would
put the cursor on Cell B3, then click the function wizard, indicate that you want a Fi-
nancial function, scroll down to RATE, and click OK. Then, in the dialog box, enter
G1 or 5 for Nper, 0 for Pmt because there are no periodic payments, B2 or 78.35 for
Pv, G2 or 100 for Fv, 0 for type, and leave “Guess” blank to let Exceldecide where to
start its iterations. Then, when you click OK, Excelsolves for the interest rate, 5.00
percent. Excelalso has other procedures that could be used to find the 5 percent, but
for this problem the RATE function is easiest to apply.
ABCDEFG
1 Time 01234 5
2 Cash flow 78.35 0000100
3 Interest rate 5%
66 Time Value of Money
