Question

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

$10,000

in

7

years.  Kirk currently has

$4,416

to invest.  What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the ring?

The annual rate of return Kirk must earn on his investment to accumulate enough money to pay for the ring is

nothing%.

(Round to two decimal places.)

Answer 1

SOLUTION :

Let r (in decimals) be the rate of return , Kirk must earn.

So,

FV = PV( 1 + r)^n

=> 10000 = 4416 (1 + r)^7

=> r = (10000 / 4416)^(1/7) - 1

=> r = 0.123855

=> r = 12.39 % approx.

So,

Kirk must earn return @ 12.39 % (ANSWER)

Answer 2