Question 5.9: Finding r for a Single-Period Investment You are considerin...

First, in this single-period case, the answer is fairly obvious. You are getting a total of $100 in addition to your $1,250. The implicit rate on this investment is thus $100/1,250 = 8 percent.
More formally, from the basic present value equation, the present value (the amount you must put up today) is $1,250. The future value (what the present value grows to) is $1,350.
The time involved is one period, so we have:
$1,250 = $1,350/(1 + r )¹
1 + r = $1,350/1,250 = 1.08
r = 8%
In this simple case, of course, there was no need to go through this calculation. But as we describe next, it gets a little harder with more than one period.