Use graphical approximation techniques or an equation solver to approximate the desired interest rate. A person makes annual payments of $ 1000 into an ordinary annuity. At the end of 5 years, the amount in the annuity is $ 5734.70. What annual nominal compounding rate has this annuity earned?

Annual Compounding rate is approximately 6.85%

Explanation:

The future value of an ordinary annuity with deposits P made  for n years, with interest compounded times once a year at an annual rate i, is given as:

If Future Value = $5734.70.

Regular Deposit, P=$1000

n=5 years

Using Excel:

In put this formula in Cell B2 : =(1000*(1+A2)^5-1000)/A2

We find out that our interest rate, r is between 0.05 and 0.06

Taking Intermediate values,

a common measurement of the relative value of goods and services.

Explanation:

Money has three functions. they are :

1. Medium of exchange : this shows the acceptability of money in exchange for goods and services.

2. Store of value : that shows the ability of money to hold value over time.

3. Unit of account : a common measurement of the relative value of goods and services. money serves a means by which one can measure the value of goods and services. for example, if we are told the price of a shoe is $1,000 and the price of another shoe is $50. We know that the $1,000 is relatively more valuable when compared to the $50 shoes.