Question

You are planning to do a Sierra Club Machu Picchu Eco-Lodge Trek in 6 years with your college roommate. The trip costs $13,000. You currently have $7,000 in your bank account and deposit an additional $800 every year beginning one year from today. What interest rate would be required if you are to have $13,000 in your bank account in 6 years?

Answer 1

Solution :-

We Required after 6 Years Money = $13,000

Now We Deposit today ( Year 0 ) = $7,000

Therefore Cash Outflow at Year 0 = $7,000

Cash Outflow at Year 1 to 5 = $800

In Year 6 Cash Outflow = $800

Cash Cash inflow ( Required Amount ) = $7,000

Therefore Net Cash Inflow in Year 6 = $7,000 - $800 = $6,200

Therefore interest Rate Required = 2.12%

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