(Q7 IN TYPE B) IF I PROMISE TO PAY YOU $1,800 NINE YEARS FROM NOW I...

2. (Q7 in Type B) If I promise to pay you $1,800 nine years from now in return for a loan of $1,000 today, what is the effective annual interest rate for this agreement? A) 5.26% B) 6.75% C) 9.00% D) 10.00% Solution B. r = (FV/PV)

^1/t

– 1 = (1800/1000)

^1/9

– 1 = 6.75% or use your financial calculator PV=1,000; FV=1,800; t=9, solve for r