Question

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%

Answer 1

12.51%

Step-by-step 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%