14. Implied interest rate and period Aa Aa Consider the case of the following an

Question

14. Implied interest rate and period Aa Aa Consider the case of the following annuities, and the need to compute either their expected rate of return or duration. Anthony inherited an annuity worth $4,762.42 from his uncle. The annuity will pay him five equal payments of $1,100 at the end of each year. The annuity fund is offering a return of Anthony's friend, Sachit, has hired a financial planner for advice on retirement. Considering Sachit's current expenses and expected future lifestyle changes, the financial planner has stated that once Sachit crosses a threshold of $3,700,872 in savings, he will have enough money for retirement. Sachit has nothing saved for his retirement yet, so he plans to start depositing $70,000 in a retirement fund at a fixed rate of 5.00% at the end of each year. It will take years for Sachit to reach his retirement goal

Explanation / Answer

1)

You can find this using a financial calculator

Return = 10.21%

Keys to use in a financial calculator: PV -4762.42, PMT 1100, N 5, CPT I/Y

2)

Number of year = 26.5 years

Keys to use in a financial calculator: FV 3700872, PMT -70000, I/Y 5, CPT N

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