Question

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 ​$11,000 in 8 years. Kirk currently has ​$4,480 to invest. What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the​ ring?

Answer 1

future value = amount invested * (1 + interest rate)^number of years.

here,

future value =$11,000

amount invested = $4,480

interest rate = to be found out

number of years = 8

now,

$11,000 = $4,480*(1+interest rate)^8

=>$11,000 / 4480 = (1+ interest rate)^8

=>2.45535714 = (1+interest rate)^8

=>2.45535714^(1/8) = 1+interest rate

=>1.11883059 = 1+ interest rate

=>interest rate = 0.11883059

=>11.88%.