Mr. Fish wants to build a house in 10 years. He estimates that the total cost will be $170,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed?
A) between 11% and 12%
B) between 8% and 9%
C) 17%
D) none of the other answers are correct

Question

Quizplus · Accepted Answer

The future value of $10,000 at the end of each year for 10 years at an interest rate of r is given by the formula:FV = $10,000 * [(1 + r)^10 - 1] / rSetting this equal to $170,000 and solving for r, we get:$170,000 = $10,000 * [(1 + r)^10 - 1] / r(1 + r)^10 - 1 = 17(1 + r)^10 = 181 + r = 18^(1/10)r = 18^(1/10) - 1r = 0.1145Therefore, Mr. Fish must earn a rate of return of between 11% and 12% in order to have the amount needed.

Mr Fish Wants to Build a House in 10 Years