Problem:
Suppose you are offered the following investment choices: You can invest $500 today and receive $600 in 5 years. The investment is considered low risk. You can invest the $500 in a bank account paying 4% annually.
Required:
Question 1: What is the implied interest rate for the first choice and which investment should you choose? Why?
Note: Please provide equation and explain comprehensively and give step by step solution.