(Related to Checkpoint 5.6) (Solving for ) Kirk Van Houten, who has been married

Question

(Related to Checkpoint 5.6) (Solving for ) Kirk Van Houten, who has been married for 23 years, would like to buy his wife an expensive diamond ring with a platinum setting on their 30-year wedding anniversary. Assume that the cost of the ring will be $13,000 in 7 years. Kirk currently has $4,426 to invest. What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the ring? The annual rate of return Kirk must earn on his investment to accumulate enough money to pay for the ring is to two decimal places) % Round

Explanation / Answer

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

13000=4426(1+r/100)^7

(13000/4426)^(1/7)=(1+r/100)

(1+r/100)=1.1664

r=(1.1664-1)*100

=16.64%(Approx).

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