Unknown periods and unknown interest rates
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E6-10 (Unknown Periods and Unknown Interest Rate) Consider the following independent situations.
(a) Mike Finley wishes to become a millionaire. His money market fund has a balance of $92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired $1,000,000?
(b) Assume that Serena Williams desires to accumulate $1 million in 15 years using her money market fund balance of $182,696. At what interest rate must Serena's investment compound annually?
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Solution Summary
The solution explains how to calculate the time period and the interest rate so as to get a desired future value given the present amount.
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(a) The number of interest periods is calculated by first dividing the future value of $1,000,000 by $92,296, which is 10.83471 - the value $1.00 would accumulate to at 10% for the unknown number of interest periods. The factor ...
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