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Rate Of Return Analysis

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Problem:
Starting at age 25, a person invests $6,000 at the end of every year for 35 years. If the person wants one million dollars at age 65, what interest rate must the investment earn?

Notes:
Person only deposits money for annually for 35 years. n=35
Last 5 years no deposits are made. n=5
Should this be solved to PW first??

i =?
A = $6,000 for n=35
F = $1,000,000

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Solution Summary

The interest rate that an investment must earn is determined. The rate of return analysis is found.

Solution Preview

First calculate the FV of annuity of $6000 for 35 years, let the interest rate is r, then we have
FV (at year 60)=C/r*((1+r)^n-1)=6000/r*((1+r)^35-1) this is nothing but 6000*FVIFA(35 years,r)
Now this is one time investment ...

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