Assume that you will require $1000 in four years' time.Suppose that you can afford to deposit only $186.29 at the end of each year,the first deposit to be made in one year's time.What interest rate would you require to reach your target if the bank compounds annually?
A)15% p.a.
B)18.5% p.a.
C)20% p.a.
D)22.5% p.a.

Question

Quizplus · Accepted Answer

The future value of an annuity formula is used to calculate the interest rate. The formula is FV = Pmt * [(1 + r)^n - 1] / r. Plugging in the values: $1000 = $186.29 * [(1 + r)^4 - 1] / r. Solving this equation gives an interest rate of approximately 20% per annum.

Assume That You Will Require $1000 in Four Years' Time