Problem 5-36 Annuity Interest Rate (LG5-8) What annual interest rate would you need to earn if you wanted a $600 per...

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Question

Problem 5-36 Annuity Interest Rate (LG5-8) What annual interest rate would you need to earn if you wanted a $600 per month co

business finance

Answer 1

Answer #1

We can use Future Value of Annuity (FVA) formula:

|(1 + i) - 1 FVA = A

52,500 = 600 (1 + i)6-12 - 1

87.5 = ! (1 + i)72 - 1

When you solve it you get i = 0.064 or 6.4%

Refer the following table for verification.

note: For one month Interest = (6.4%/12)

Year Month Interest Opening opening * 6.4% contribution Balance 600 1203 3.200 6.417 1810 9.651 2419 3032 3648 4268 4891 600

Year Balance 600 000 au 600 600/ Interest Month Opening Opening 6.4% contribution 15318.73 81.700 16000.43 85.336 16685.77 88

Year 3 Interest Month Opening contribution Balance Opening * 6.4% 1 32723.36 174.525 600 33498 33497.88 178.655 34277 34276.5

Answer 2

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