Question

(Related to Checkpoint 5.6) (Solving for f) Kirk Van Houten, who has been married for 22 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 $11,500 in 8 years. Kirk currently has $4,422 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 (Round to two decimal places.)

Answer 1

1)

period of investment = n = 8 years

cost of ring in 8 years , C = $11500

amount invested = A = $4422

annual rate of return = i= ((C/A)^(1/n))-1 = ((11500/4422)^(1/8))-1 = 0.12689 or 12.689% or 12.69% ( rounding off to 2 decimal places)