Question

Jacob needed money for some unexpected expenses, so he borrowed $5,890.25 from a friend and agreed to repay the loan in seven equal installments of $1,250 at the end of each year. The agreement is offering an implied interest rate of:

A) 14.85%


B) 9.57%


C) 11.00%


D) 12.98%


Jacob's friend Wilson, has hired a financial planner for advice on retirement. Considering Wilson's current expenses and expected future lifestyle chnages, the financial planner has stated that once Wislon crosses a threshold of $8,452,622 in savings, he will have enough money for retirement. Wilson has nothing saved for his retirement yet, so he plans to start depositing $40,000 in a retirement fund at a fixed rate of 11.00% at the end of each year. It will take _____ years for Wilson to reach his retirement goal.


A) 30.55 years


B) 41.24 years


C) 38.19 years


D) 25.97 years

Answer 1

OPTION C i.e 11%

Option A i.e 30.55 year

Step-by-step explanation:

we know that capital can be calculated as

`Capital = EMI * PVIFA`

`capital = EMI * ((1+r))^n -1)/(r (1+r)^n)`

from the data given in question we can calculate the value of r

so

`5890.2 = 1250 * ((1+r))^7 -1)/(r (1+r)^7)`

`4.7122 = ((1+r))^7 -1)/(r (1+r)^7)`

solving for r we get

r = 11%

option C

we know that

`Total\ saving  =  cash flow * FVIFA`

`= Cash\ flow * ((1+r)^n -1)/(r)`

from the data given we can evealueate the value of n

`8,452,622 = 40,000 * ((1.11)^n -1)/(0.11)`

`(8452622)/(40000)* 0.11 = (1.11)^n -1`

solving for n we get

n = 30.55 year.

Option A