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    sumluck1111's Avatar
    sumluck1111 Posts: 3, Reputation: 1
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    #1

    Feb 11, 2008, 07:00 PM
    Annual Rate Interest
    What is the annual rate of interest you must earn on an investment to have $250,000 available in 12 years if you would like to allocate $20,000 today?


    :D
    JBeaucaire's Avatar
    JBeaucaire Posts: 5,426, Reputation: 997
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    #2

    Feb 11, 2008, 07:13 PM
    21.25%
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #3

    Feb 12, 2008, 01:45 PM
    People, a lot of this is homework problems. You aren't really helping anyone by just giving answers away.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Feb 12, 2008, 01:58 PM
    Not to mention that it's incorrect. That will only get someone just over $200,000 after 12 years.

    Original poster... I'm going to have to assume this compounds annually also, even though it doesn't say. But if it doesn't compound, you end up with a ridiculous rate of 95.8% because it just won't grow that fast if it doesn't compounding. (Compounding does wonderful things.)

    I don't know how you are supposed to be solving these, but the equation for it is:
    FV = PV (1 + r) ^ yrs

    That's assuming annual compounding. (The equation won't work quite like that if something compounds differently.) This will also, of course, include knowing how to work out the algebra to solve that. Given that it's finance, you might be required to do that. If you are supposed to solve them in some other way, you'd have to say what that was. (I'm not aware of charts that solve for interest rate, but they could exist.) If you're having trouble figuring out what is future and present value, etc. then please ask that.
    JBeaucaire's Avatar
    JBeaucaire Posts: 5,426, Reputation: 997
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    #5

    Feb 12, 2008, 08:12 PM
    I was compounding monthly using Excel's FV function. 12 years = 144 months with an initial investment of $20k. I didn't do it for annual compounding but I see how that would muck it up.
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