If a sum is worth $615 today and it will be worth $731 two years from now, how much was it worth one year ago?

Question

raffle_snaffle · Answer

@tkhunny

raffle_snaffle · Answer

Okay so I have found the interest rate = 0.09023

tkhunny · Answer

Insufficient information.  There are infinitely many pathways between the two values.  Is there an interest accumulation specification?

raffle_snaffle · Answer

No this is all the info I have available.

raffle_snaffle · Answer

I have some charts in the back of my book that have compound interest factors available

tkhunny · Answer

You did this: 615(1+i)^2 = 731 ==> 9.0237537%
Why not this: 615 + 615*r*2 = 731 ==> 9.4308943%
Or this: 615(1+(I/12))^24 = 731 ==> 8.6707356%
Or this:  615e^(2i) = 731 ==> 8.6395596%

See what I mean?

Worse yet, it could be a terribly unstable market - really good one year and horrible the next.

615 (1 + 0.25)(1 - 0.49105691) = 731

If all we're doing is annual compounding, then you have it.  Seriously, INFINITELY many paths.

raffle_snaffle · Answer

I see.

raffle_snaffle · Answer

@mathstudent55