Question

You have just deposited $11,000 into an account that promises to pay you an annual interest rate of 6.5 percent each year for the next 6 years. You will leave the money invested in the account and 10 years from today, you need to have $26,300 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal?

Answer 1

Step-1:Calculation of future Value of investment in 6 years
	Future Value		=	P*(1+i)^n		Where,
			=	11000*(1+0.065)^6		P	$        11,000
			=	$              16,051		i	6.50%
						n	6
Step-2:Calculation of Interest rate over the last 4 years
	Future Value		=	P*(1+i)^n		Where,
	$       26,300		=	16051*(1+i)^4		P	$        16,051
	1.6386		=	(1+i)^4		i	?
	1.6386^(1/4)		=	1+i		n	4
	1.13140538		=	1+i
	i		=	0.131405375
Thus,
	Required annual interest rate over the last 4 years must be					13.14%