Question

Trace plans to retire in 3 years with $518,000 in his account. If he receives payments of $123,400 per year and he receives his first $123,400 payment in 3 years and his last $123,400 payment in 7 years, then what is the expected annual return for his account? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer #1

Using excel Rate function to derive the rate as in image attached.

Nper = 5 (Years 3 to 7)

PV = -518000

PMT = 123400

Type = Beginning of period

Find Rate as 9.60%

Answer = 0.0960

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