Question

Sonya saved $15,000 last summer from working on a road construction crew in Montana. What a great job. She came back really tan. She wants to invest the full amount now so that in 10 years she can buy her dream car, which costs $30,000. What rate of return will she need to receive in order to accomplish this goal

Answer 1

7.18%

Step-by-step explanation:

Data provided in the question:

Principle amount i.e the amount invested = $15,000

Time, n = 10 years

Future value = $30,000

Now,

Using the compounding formula

we have

Future value = Present value × ( 1 + rate )ⁿ

Therefore,

$30,000 = $15,000 × ( 1 + rate )¹⁰

or

2 = ( 1 + rate )¹⁰

or

1 + rate = 1.0718

or

Rate = 1.0718 - 1

or

Rate = 0.0718

or

Rate = 0.0718 × 100% = 7.18%