You are investing a lump sum of $7200 with a goal of saving $200 000 total in 30 years.What annual interest rate on your investments would you need to reach your goal?

Question

Quizplus · Accepted Answer

To calculate the required annual interest rate, we can use the compound interest formula, which is:
Total amount = Principal x (1 + annual interest rate)^(number of years)
In this case, the principal is $7200, the number of years is 30, and the total amount we want to achieve is $200,000. Putting these values in the formula, we get:
$200,000 = $7200 x (1 + annual interest rate)^30
Simplifying the equation, we get:
(1 + annual interest rate)^30 = 200,000/7200 = 27.78
Taking the 30th root on both sides, we get:
1 + annual interest rate = 27.78^(1/30) = 1.117
Subtracting 1 from both sides, we get:
Annual interest rate = 0.117 = 11.7%
Hence, the required annual interest rate is 11.7%, which corresponds to option B.

You Are Investing a Lump Sum of $7200 with a Goal