Calculating Average Annual Compound Rate of Interest

Jake's Loan from His Father

Jake borrowed $18,000 from his father to purchase a camper. He paid back $25,000 to his father at the end of 6 years.

Jake's loan is an example of a financial transaction where he borrowed money from his father and paid it back with interest over a period of time. In this case, Jake borrowed $18,000 and paid back $25,000 after 6 years. To calculate the average annual compound rate of interest on Jake's loan, we can use the following formula:

Answer:

5.63%

Explanation:

The annual compound rate of interest on Jake's loan from his father is calculated as :

PV = $18,000

N = 6

P/yr = 1

Pmt = $ 0

FV = - $25,000

i = ?

Using a financial calculator to input the values as shown above, the annual compound rate of interest is 5.6277 % or 5.63%

Question:

What was the average annual compound rate of interest on Jake's loan from his father?

Answer:

5.63%