Question

- How many years will it take for $100,000 to grow to $500,000 if it is invested at an annual interest rate of 9.15%? Round to the nearest 0.01.

- You are told that if you invest $5,000 per year for 35 years you will have accumulated $1,000,000. What is the annual rate of return on the latter investment? Round to the nearest 0.01%.

Answer 1

Question 1

Sol:

Present value (PV) = $100,000

Future value (FV) = $500,000

Annual interest rate = 9.15%

To determine how many years it will take for the investment to grow we can use NPER function in excel:

FV	500,000
PV	-100,000
Interest rate	9.15%
Period (NPER)	18.38

Therefore it will take approximate 18.38 years for the investment to grow.

Working

2)

Annual investment (PMT) = $5,000

Period (NPER) = 35 years

Future value (FV) = $1,000,000

To compute annual rate of return we can use RATE function in excel:

FV	1,000,000
PMT	-5,000
Period	35
Annual rate	8.67%

Therefore annual rate of return will be 8.67%

Working