What would be the effective rate of interest if $100,000 was accumulated by investments of $3,500 made at the end of every three months for five years?

Question

Quizplus · Accepted Answer

The effective rate of interest can be found using the formula for the future value of an annuity. The formula is FV = P * [(1 + r)^n - 1] / r, where FV is the future value, P is the payment per period, r is the interest rate per period, and n is the total number of payments. Here, we are given FV = $100,000, P = $3,500, and n = 5 years * 4 quarters/year = 20 quarters. We are asked to find the effective annual interest rate, not the quarterly rate, so after finding the quarterly rate, we will need to adjust it to an annual rate.Since the exact rate isn't provided, we can't directly calculate it from the formula. However, we can use financial calculators or spreadsheet software to solve for the interest rate that satisfies the equation given the inputs. The correct answer, based on these calculations, is 15.20%, which indicates an effective annual rate of interest after compounding. This rate reflects the compounded growth of the investment over the period, taking into account the frequency of contributions and the time value of money.

What Would Be the Effective Rate of Interest If $100,000