Question

You will invest $150 per month starting immediately for the next 20 years and you expect the amount of money you will have at the end of 20 years will be $78 595. How much is the annual interest rate you are earning on your money?

Answer 1

7%

Step-by-step explanation:

The computation of the annual interest rate is shown below:

Given that

N = 20 × 12 = 240

Present Value(PV) = $0

Periodic Payments (PMT ) = $150

Future Value (FV) = $78,595

Type = 1 as this is an annuity due.

Now Use the Rate function in excel,

=RATE (Nper, Pmt,-Pv, FV,Type)

= RATE(240,-150,0,78595,1,0)

= 0.0058

Now

Yearly Rate is

= 0.0058 × 12

= 7%