Time ValuePersonal Finance Problem Misty needs to have $18 comma 00018,000 at th

Question

Time ValuePersonal Finance Problem Misty needs to have $18 comma 00018,000 at the end of 77 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 77 years until it grows to $18 comma 00018,000, but she wonders what sort of investment return she will need to earn to reach her goal. Use your calculator or spreadsheet to figure out the annually compounded rate of return needed if she can invest $12 comma 80012,800 today. The annually compounded rate of return Misty needs to earn to reach her goal is nothing%. (Round to two decimal places.)

Explanation / Answer

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

Hence

18000=12800(1+r/100)^77

(18000/12800)^(1/77)=(1+r/100)

(1+r/100)=1.00444

Hence r=(1.00444-1)

=0.44%(Approx).

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.