Your father helped you start saving $25 a month beginning on your fifth birthday. He always made you deposit the money into your savings account on the first day of each month just to "start the month out right." Today completes your 15th year of saving and you now have $6,528.91 in this account. What is the rate of return on your savings?

Question

Quizplus · Accepted Answer

The rate of return can be calculated using the formula for the future value of a series: FV = P * [(1 + r)^n - 1] / r, where FV is the future value of the savings, P is the payment amount per period, r is the rate of return per period, and n is the total number of payments. Given that the savings amount is $6,528.91, the monthly deposit is $25, and the total number of deposits over 15 years (180 months) is known, we can solve for r (the monthly rate of return) and then annualize it. The correct rate of return that matches the given future value under these conditions is approximately 4.67 percent annually.

Your Father Helped You Start Saving $25 a Month Beginning