Question

You have just deposited $8,000 into an account that promises to pay you an annual interest rate of 5.9 percent each year for the next 5 years. You will leave the money invested in the account and 15 years from today, you need to have $19,400 in the account What annual Interest rate must you earn over the last 10 years to accomplish this goal? 50:50 Multiple Choice O O O C < Prev 17 of 20 Next >

Answer 1

A.6.18%.

first let us know the amount after 5 years

=> amount deposited *(1+r)^n

=>8000*(1.059)^5

=>10,655.4007.

This will be the amount which will increase to $19,400 by the end of 15 years, i.e this amount is kept idle for 10 years.

amount kept *(1+r)^n =19,400

=>10,655.4007 *(1+r)^10=19,400

=>(1+r)^10=>1.82067297

=>1+r =(1.82067297)^(1/10)

=>1+r=1.06175226.

=>r=6.17%.