Tom Watson promises to deposit a sum of $100,000 for his granddaughter's college education 18 years from now. If he invests $20,000 today, what should be return on investment he should get to be able keep up the promise? Assume interest is compounded yearly.
A) 9.35%
B) 8.52%
C) 10.04%
D) 7.65%

Question

Quizplus · Accepted Answer

To find the required rate of return, we use the future value formula for compound interest: FV = PV * (1 + r)^n. Here, FV = $100,000, PV = $20,000, and n = 18 years. Solving for r gives approximately 9.35%.

Tom Watson Promises to Deposit a Sum of $100,000 for His