Question

you have just deposited $11000 in to an account that promises to pay you an annual interest rate of 6.5 percent each year for the next 6 years. You will leave the money invested in the account and 10 years from today. you need to have $26300 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal

Answer 1

Answer:

Over the last 4 years to accomplish this goal the annual interest rate must be 13.14 %.

Explanation:

First find the Future value (FV) of $11,000 at the end of the 6th year as follows :

PV = -$11,000

r = 6.50%

p/yr = 1

n = 6

Pmt = $0

FV = ?

Using a financial calculator, the Future Value (FV) is $16,050.57

Therefore, the amount invested will amount to $16,050.57 in 6 year.

Next we then calculate the interest rate that will give us $26300 in the next four years (remainder of the 10 years)

PV = -$16,050.57

FV = $26,300

P/yr = 1

n = 4

Pmt = $0

r = ?

Using a financial calculator, the Interest rate (r) is 13.14 %

Conclusion :

Over the last 4 years to accomplish this goal the annual interest rate must be 13.14 %.