how to solve it by using excel function??? pls show steps and expain in detail..
ID: 2737871 • Letter: H
Question
how to solve it by using excel function??? pls show steps and expain in detail... ty!!!
Dave is planning to purchase an annuity from the Chubb Insurance Company which pays $1,000 monthly for 7 years. He wants to be able to pay for his Daughter's college which he expects will cost $300,000, payable in 8 equal payments at the beginning of each of the semesters she will be in college. (Assume these college payments are made every six months and the account in which the funds will be held is expected to earn 6% interest compounded semi-annually.) If the last annuity payment will be received on the first day Dave will start having to pay for college, what interest rate will Dave have to earn in the account in which the annuity payments will be deposited to have exactly enough money to make all the anticipated payments?Explanation / Answer
First we have to find the present value of the semester fee which he will make in 8 installments.
use pv formuale in excel to fidn it
=pv(rate,nper,pmt,fv,type)
here rate=6%/2 (semi twice in year)
nper=8
pmt=300000/8=37,500
type=0
=PV(6%/2,8,-300000/8,,1)=$271,135.61
This is the amount the annuity payment should be able to generate after 7 years
use rate formuale in excel to find the interets rate
=rate(nper,pmt,pv,fv,tyype,guess)
=RATE(7*12,-1000,,271135.61,0,0)
=2.45%
and for yearly it is 2.45*12=29.4%
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