[jlh_05]

IS there a better way of solving this then trial and error... how do you solve on the BA II plus calculator??


A financial planning service offers a post-secondary savings program. The plan calls for you to make eight annual payments of $11,700 each, with the first payment occurring today, your child's 12th birthday. Beginning on your child's 20th birthday, the plan will provide $32,000 per year for ten years.

What return is this investment offering? (Try and make your answer as accurate as possible)

[jlh_05]

solving it by hand I get this
(1+r)^18-3.74*(1+r)^10+2.74

and then you use trial and error to solve but I want to know how to do it on the calculator because my exam will be multiple choice so it will be faster to use calculator please help

[morgaine300]

Are you sure it will be on your exam? My calculator times out on it. (I have an HP 10B.) Solving for interest in an annuity is the one thing in time value of money that I cannot do. (Though I did just find a way to get a starting approximation from some charts, so I at least know where to start.)

Yes, I do trial & error. I think ArcSine (wherever he is) knows how to do it in Excel, but you won't have that available for your test. If they are going to put it on a test, I would think they would provide better means by which you can do it. Seems a little odd.

[jlh_05]

I figured it out using my calculator
CF = -11700
CO1 = -11700
FO1 = 7 (because you make 7 payments from his 12th birthday to the end of 20th birthday or beg of 21st birthday)
CO2 = 32,000
FO2 = 10


Press IRR button and hit CPT button to get the answer

[morgaine300]

My calculator must be a baby one. It doesn't have an IRR button.

It's 8 years. Think about it.

[jlh_05]

Well it goes until the 19th b-day because starting on the 20th birthday they get 32,000 per year... so we need the 12,13,14,15,16,17,18,19 which is 8 years BUT... it says that the first payment is already made so to get to the 19th there are only 7 more years of payments.