TVM06 - Present Value of a Single Sum – Unknown Interest Rate

Audio Transcript

This is a problem in which the present value, future value and the number of periods is known, and the interest rate is unknown,

Your company needs $1,500,000 to build a new manufacturing plant six years from now. Your company currently has $800,000 to invest to build this plant. At what rate of interest must it invest the $800,000 to fund the plant six years from now?

First, plug in the known values into the appropriate cells:

The future value – FV – is $1,500,000

The present value – PV – is ($800,000)

The number of periods – NPER is 6

Going to the formulas tab, look for the Rate function.

The function wizard pops up

Select PV,

Select NPER,

Select FV

Hit OK

The rate is 11%