Question

Candice Willis will invest $30,000today.Sheneeds$150,000 in 21 years. What annual interest rate must she earn?

Short answer

The annual interest rate that she must earn is 5%.

Step-by-step solution

Definition of annual interest rate

Annual Interest Rate is defined as the amount charged by the lender annually from the borrower for using the money.

Computation of annual interest rate

$\begin{array}{rcl}\mathit{F}\mathit{V}& \mathbf{=}& \mathit{P}\mathit{V}\mathbf{(}\mathit{F}\mathit{V}\mathit{F}\mathit{n}\mathbf{,}\mathit{i}\mathbf{)}\\ \mathbf{150}\mathbf{,}\mathbf{000}& \mathbf{=}& \mathbf{30}\mathbf{,}\mathbf{000}\mathit{X}\\ \mathbf{5}& \mathbf{=}& \mathit{X}\end{array}$

By using the present value table, Interest rate = 5% approximately