Manuel begins investing $700 per month for 4 years in an account earning 3.8% compounded annually. At the end of this time, he makes a $20,000 lump sum deposit on top of the accumulated investment into another account. At the end of 5 years, this amount has accumulated to $84,000. Based on monthly compounding, determine what the rate of interest that will achieve this goal.
A) 8.01%
B) 8.28%
C) 8.13%
D) 8.33%
E) 8.97%

Question

Quizplus · Accepted Answer

The future value of the initial investment can be calculated using the formula for the future value of an annuity. After 4 years, the accumulated amount is transferred to another account with a lump sum deposit. The future value of this new account after 5 years is given, and the interest rate can be calculated using the future value formula with monthly compounding. The correct interest rate that results in the future value of $84,000 is approximately 8.28%.

Manuel Begins Investing $700 Per Month for 4 Years in an Account