Question

# - How many years will it take for \$100,000 to grow to \$500,000 if it is...

- 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%.

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

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