Question

Problem P3-16 (similar to) EQuestion Help Ques Kirk Van Houten, who has been married for 23 years, would like to buy his wife an expensive diamond ring with a platinum setting on their 30-year wedding anniversary. Assume that the cost of the ring will be $13,283 in 7 years. Kirk currently has $4,700 to invest. What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the ring? Click the table icon to view the PVIF table wnonlble 1 28 n 7 yeartoble The annual rate of return Kirk must earn on his investment is % Round to the nearest integer )

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

13283=4700*(1+r/100)^7

(13283/4700)^(1/7)=(1+r/100)

(1+r/100)=1.16

r=1.16-1

=16%