# 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.