Posted by Rob on .
Word problem asks to find rate of interest on a monthly deposit for a sinking fund that is needed to produce 130,000 in 20 years.
I applied the model, (fv/pv)^1/t -1
I use n/t if compounding yearly, quaterly, etc. No matter what I've tried I can't produce the interest rate answer shown in the text.
Here's the original problem:
Jose wants to retire in twenty years and he is deposits $200 at the end of each month in a sinking fund. If he wants to accumulate $130,000 in the twenty years period, what interest rate would provide that amount? Ans: 8.79%
I've tried different variations on principal and exponent and I don't see the outcome, 8.79%. How do you find the rate of interest on an annuity or sinking fund problem like this one?