Question

Problem 7-12

You are 25 years old and inherit $70,000 from your grandmother. If you wish to purchase a $114,000 boat to celebrate your 35th birthday, what compound annual rate of return must you earn? Use Appendix A to answer the question. Round your answer to the nearest whole number.
________  %

please show work

Answer 1

Amount inherited from grandmother at 25 yaesr of age = $70,000

future Value of amount in 10 years or at age 35 = $114,000

Calculating the Annual Rate of return to be earned to accumulate the amount:-

Future Value = Present Value*(1+r)^n

where, r= Annual Rate of return

n = no of years = 10

$114,000 = $70,000*(1+r)^10

1.62857142857 = (1+r)^10

Taking 10-root on both sides,

1.049979 = (1+r)

r = 5.00%

So, compound annual rate of return must you earn is 5%

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