Question

You have just deposited $11,000 into 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 $26,300 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal?

Answer 1

13.14%

Step-by-step explanation:

1. From now to end of year 6:

n = 6 years

i/r = 6.5% (annual interest)

PV = $-11,000 (deposit at year 0)

PMT = 0 (No annual deposit)

FV = ? (We need to find the value of the account at the end of year 6)

Using financial calculator, FV = $16,050.57

2. From year 7 - year 10

n = 4 years

i/r = ? (We need to find the annual interest of the last 4 years)

PV = $16,050.57 (This is the account value at the end of year 6)

FV = $26,300 (The amount you need to have at end of year 10)

PMT = 0 (No annual deposit)

Using Financial calculator, i/r = 13.14%