Answer:
The annual interest rate you must earn over the last 6 years to accomplish this goal is 17.03%.
Explanation:
Future value after 4 years = Deposited amount * (100% + Annual interest rate for 4 years)^4 = $10,000 * (100% + 6.3%)^4 = 12,768.30
The interest rate can be calculated using the following RATE function in Excel:
Interest rate = RATE(nper,pmt,-pv,fv,type) .............(1)
Where;
nper = number of periods = number of years remaining after 4 years = 10 - 4 = 6
pmt = Annual payments = 0 (This is 0 because there is no annual payment)
pv = present value = Future value after 4 years = $12,768.30
fv = future value = The amount you need to have in the account after 10 years = $32,800
type = when payments are due (0 = end of period. 1 = beginning of period) = 0
Substituting the values into equation (1), we have:
Interest rate = RATE(6,0,-12768.30,32800,0) .................. (2)
Inputting =RATE(6,0,-12768.30,32800,0) into a cell in an excel sheet (Note: as done in the attached excel file), the annual interest rate is obtained as 17.03%.
Therefore, the annual interest rate you must earn over the last 6 years to accomplish this goal is 17.03%.
