Homework Answers
Nominal future value after 30 years = Annual investment x F/A(r%, N)
1,400,000 = 5,000 x F/A(r%, 30)
F/A(r%, 30) = 280
From F/A factor table, we find that F/A(12%, 30) = 241.3327 and F/A(13%, 30) = 293.1992
Since 241.3327 < 280 < 293.1002,
12% < r < 13%.
Using interpolation,
(r - 12) / (13 - 12) = (280 - 241.3327) / (293.1002 - 241.3327)
r - 12 = 38.6673 / 51.7675
r - 12 = 0.75
r = 12.75%
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