3-5determining an interest rate

DETERMINING an interest rate to establish economic equivalence

Thus far, we have assumed that, in equivalence calculations, a typical interest rate is given and is also invariant.now we can use the same interest formulas that we developed earlier to determine interest rates that are explicit in equivalence problems. For most commercial loans, interest rates are already specified in the contract. However , when making some investments in financial assets, such as stocks, you may want to know the rate of growth at which your asset is appreciating over the years. Although we can use interest tables to find the rate that is implicit in single payments and annuities, it is more difficult to find the rate that is implicit in an uneven series of payments. In such cases, a trial and error procedure or computer software may be used.