Question

Time Value  Personal Finance Problem   Misty needs to have ​$18,000 in 4 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 4 years until it grows to ​$18,000​, but she wonders what sort of investment return she will need to earn to reach her goal. Use your calculator or spreadsheet to figure out the approximate annually compounded rate of return needed if she can invest ​$11,900 today.

The annually compounded rate of return Misty needs to earn to reach her goal is

Answer 1

Desired Balance after 4 years = $18,000
Investment Amount = $11,900
No of years = 4

In financial terms,
FV = $18,000
PV = $11,900
No of Years = 4

We have to find annually compounded rate of return.

By using the formula to calculate Rate of Return in excel. The formula is
=Rate(NPer, pmt, Present Value, -Future Value, Type)
where,
Rate = Interest Rate
NPer = No of Periods    
PMT = Periodic Monthly Payments
Type is 0 if PMT are made on the end of year and 1 if the payments are made at the beginning of year. Since it is a credit card charges we assume it to be paid at the end of year.

Using the formula
Rate = 10.90%

The annually compounded rate of return Misty needs to earn to reach her goal is 10.90%