Bill is considering investing $450 at the end of every month in a fixed income instrument. He will receive $27,000 at the end of
1 answer:
Answer:
11.61%
Explanation:
First, find the annual percentage return (APR) of this annuity. Using a financial calculator, input the following;
Recurring payment; PMT = -450
Future value ; FV = 27,000
Duration of investment ; N = 4*12 = 48 months
One -time present value; PV = 0
then compute interest rate; CPT I /Y= 0.92% (this is monthly rate)
APR = 0.92*12 = 11.035%
Effective Annual Rate (EAR) formula is as follows;
EAR = (1+ ) ^m -1
EAR = 1+ )^12 -1
EAR = 1.1161 -1
EAR = 0.1161 or 11.61%
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