Question

You agree to make 24 deposits of $500 at the beginning of each month into a bank account. At the end of the 24^th month, you will have $12,500 in your account. If the bank compounds interest monthly, what nominal annual interest rate will you be earning?

Answer 1

FVAnnuity Due = c*(((1+ i/(f*100))^(n*f) - 1)/i)*(1 + i/(f*100))

C = Cash flow per period

i = interest rate

n = number of payments I f = frequency of payment

12500= 500*(((1+ Interest rate/1200)^(2*12)-1)/(Interest rate/1200))*(1+Interest rate/1200)

Interest rate% = 3.9

Using Calculator : Press buttons : "2ND"+"PMT"+"2ND"+"ENTER"+"2ND"+"CPT" then assign

FV =12500

PMT =-500

N =2*12

PV = 0

CPT I/Y

Interest rate = I/Y*12

Using Excel

=RATE(nper,pmt,pv,fv,type,guess)*no. of payments per year

=RATE(12*2,-500,,12500,1,)*12