Question

I plan to invest$2,000 now with the hope of withdrawing$5,500 in 72 months. What monthly rate of return is required?

Answer 1

Answer:

The question is missing options as shown in the attached.

The correct option is C, the monthly rate of return is 1.41%

Explanation:

The future value formula comes handy in this scenario.

FV=PV(1+r)^n

FV=future value=$5500

PV=present value=$2000

r=unknown

n=number of months =72

5500=2000(1+r)^72

by dividing both sides by 2000 we have

5500/2000=(1+r)^72

divide index by 72

(5500/2000)^1/72=1+r

1.01414 =1+r

r=1.01414-1

r=.01414

r=1.41% approximately

Hence option C as found in the image attached is the correct option

Answer 2

Answer:

1.41%

Explanation:

Principal Amount = $2,000

Withdrawal Amount = $5,500

Number of month = 72 month

Monthly rate of return = ?

Use Following formula to calculate rate of return

A =P x ( 1 + r )^n

$5,500 = $2,000 x ( 1 + r )^72

$5,500 / $2,000 = ( 1 + r )^72

2.75 = ( 1 + r )^72

$\sqrt[72]{2.75}$ = $\sqrt[72]{( 1 + r )^72}$

1.01415 = 1 + r

r = 1.01415 -1

r = 0.0141

r = 0.0141

r = 1.41%