• ### What nominal interest rate must the analyst be using to find the future value in this problem?

If it were evaluated with an interest rate of zero percent, a 10-year ordinary annuity would have a present value of \$4,000. If the future (compounded) value of this annuity, evaluated at Year 10, is \$6,425, what nominal interest rate must the analyst be using to find the future value? I can see two different ways of doing this problem. 1)... show more
If it were evaluated with an interest rate of zero percent, a 10-year ordinary annuity would have a present value of \$4,000. If the future (compounded) value of this annuity, evaluated at Year 10, is \$6,425, what nominal interest rate must the analyst be using to find the future value? I can see two different ways of doing this problem. 1) With a \$4,000 present value at a zero interest rate, the payment amount is equal to the present value divided by the number of periods (10). Thus, the payment amount is 400. Now that we have the payment amount, we can plug in the rest of the data into the calculator: FV=6425 PMT=400 N=10 I/Y=? Computed: I/Y=10.16296890% or 10.16% or 2) PV=4000 FV=6425 N=10 I/Y=? Computed? I/Y=4.85310944 Which one (if either) is correct?