Question

Your father helped you start saving $20 a month beginning on your fifth birthday. He always made you deposit the money into your savings account on the first day of each month just to "start the month out right." Today completes your 17th year of saving and you now have $6,528.91 in this account. What is the rate of return on your savings?

Answer 1

Answer:

0.0515 or 5.15%

Explanation:

Given that

Monthly saving (C) = $20

Time (n) = 17 years ×  12 months = 204 months

Future value (F) = $6,528.91

Using Future value if annuity due formula:

F = C × (1+r) × [{(1+r) ^n - 1 } ÷ r ]

$6,528.91 = $20 × (1+r) ×[{(1+r) ^204 - 1 } ÷ r ]

After solving this, the r value is

= 0.004288

Now

The annual rate of return is

= 0.004288 × 12 months

= 0.0515 or 5.15%

We simply applied the above formula to get the rate of return