Suppose that at the end of each month you save $1,500, for three years, and at the end of the...
Question:
Suppose that at the end of each month you save $1,500, for three years, and at the end of the three years, you will have $60,000.
What is the annual interest rate if the interest is composed monthly?
A. 0.59%
B. 2.48%
C. 7.12%
D. 50.16%
Annuity:
An annuity is featured by a series of cash flows within a fixed term. The concept of an annuity could guide an investor for a savings plan with a given future value of savings. In practice, a term loan represents the concept of an annuity as well.
Answer and Explanation: 1
The answer is C. 7.12%
Given information:
- Monthly savings = $1,500
- N = 12 x 3 = 36
- FV = $60,000
Estimate the monthly interest rate by using financial calculator:
- N = 36
- PMT = 1,500
- FV = 60,000
- CPT I = 0.59304%
- APR = 0.59304% x 12 = 7.12%
Learn more about this topic:
from
Chapter 2 / Lesson 7Learn about annuities. Understand what an annuity is, examine the annuity formula and learn how to calculate its future value, and see examples of annuities.