Finite Math

A person invests $2000 annually in an IRA. At the end of 6 years, the amount in the fund is $14000. What annual nominal compounding rate has this fund earned?

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asked by Lynn
  1. amount of sinking fund:

    S = N [(1+r)^n -1 ]/r
    7 = [(1+r)^6 -1 ]/r
    7 r = (1+r)^6 -1

    (1+r)^6 = 7 r + 1
    I do not see a closed form solution off hand.
    make a table
    r left right
    .04 1.26 1.28
    .05 1.34 1.35
    .06 1.42 1.42 looks like 6%

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    posted by Damon
  2. 2000(1+i)^6 = 14000
    (1+i)^6 = 7
    take 6th root
    1+i = 1.38308
    i = .3808
    or
    38.08%

    Quickly, tell me where I can earn 38% interest.

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    posted by Reiny
  3. forget my answer, go with Damon

    I read it as a single deposit.

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    posted by Reiny
  4. Thank you both. I tried this using the "72 rule" and was discouraged by my answer due to the book answer of 9.64% and I am not sure how that answer is founded.

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    posted by Lynn

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