You have just deposited $8,500 into an account that promises to pay you an annual interest rate of 6 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 $19,320 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal? Select one: 12.51% 11.55% 11.37% 14.07% 10.01%

Question

Christopher Hampton

Business

20 July, 13:23

You have just deposited $8,500 into an account that promises to pay you an annual interest rate of 6 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 $19,320 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal? Select one: 12.51% 11.55% 11.37% 14.07% 10.01%

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Answers (1)

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Yareli Knight · Answer 1

12.51%

Explanation:

after the first 6 years, you will have:

FV = PV (1 + r) ⁿ

PV = $8,500 r = 6% n = 6

FV = $8,500 (1 + 6%) ⁶ = $12,057.41

If you need to have $19,320 in 4 years, then you must determine r:

$19,320 = $12,057.41 (1 + r) ⁴

$19,320 / $12,057.41 = (1 + r) ⁴

1.6023 = (1 + r) ⁴

⁴√1.6023 = 1 + r

1.1251 = 1 + r

1.1251 - 1 = r

0.1251 = r

r = 12.51%