You wish to have $4000 in 3-years time.If you invest $3000 today,what nominal rate j₄ must you earn on your investment to reach your goal?

Question

Quizplus · Accepted Answer

To find the nominal rate required to grow $3000 to $4000 in 3 years, we use the formula for compound interest: $A = P(1 + r)^n$, where $A$ is the future value ($4000), $P$ is the present value ($3000), $r$ is the annual interest rate, and $n$ is the number of periods (3 years). Rearranging the formula to solve for $r$, we get $r = \left(\frac{A}{P}\right)^{\frac{1}{n}} - 1$. Plugging in the values, $r = \left(\frac{4000}{3000}\right)^{\frac{1}{3}} - 1 = \left(\frac{4}{3}\right)^{\frac{1}{3}} - 1 \approx 0.0971$ or 9.71%.

You Wish to Have $4000 in 3-Years Time