Jamal wants to invest $150 every month for 10 years.   At the end of that time he would like to have $25000.  At what annual interest rate, compounded monthly, does Jamal need to invest to reach...

Jamal wants to invest $150 every month for 10 years.   At the end of that time he would like to have $25000. 

At what annual interest rate, compounded monthly, does Jamal need to invest to reach his goal?

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This question is related to the future value of growing annuity. It is given by;

`FV = A((1+i)^n-1)/i`

 

FV = Future value of the time period n

A = Initial payment at n=1

i = compound rate

n = number of payment period considered

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sibun | Student

This question is related to the future value of growing annuity. It is given by;

 

FV = Future value of the time period n

A = Initial payment at n=1

i = compound rate

n = number of payment period considered

 

For the question;

FV = $25000

A = $150

n = 120 months

 

 

For ease of calculation we can set 

Then ;

No using a scientific calculator you can solve this.

It will give r as;

 

So the monthly interest rate 

Annual interest rate 

 

So the annual interest rate would be 6.31%.

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