You currently have $67,000 in an interest-earning account.From this account,you wish to make 10 year-end payments of $8,500 each.What annual rate of return must you make on this account to meet your objective?
A)4.16%
B)4.58%
C)6.42%
D)7.32%

Question

Quizplus · Accepted Answer

We can use the present value of an annuity formula to solve the problem:

PV = PMT * ((1 - (1 + r)^-n)/r)

where PV is the present value of the payments, PMT is the payment amount, r is the annual rate of return, and n is the number of payments.

Substituting the given values:

$67,000 = $8,500 * ((1 - (1 + r)^-10)/r)

We can solve for r using trial and error or using Excel solver. Using trial and error, we find that the closest answer is r = 4.58%. Therefore, B is the best choice.

You Currently Have $67,000 in an Interest-Earning Account