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On January 1, 2005, a person’s savings account was worth $250,000. Every month thereafter, this person...

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Finance

On January 1, 2005, a person’s savings account was worth$250,000. Every month thereafter, this person makes a cashcontribution of $750 to the account. If the fund is expected to beworth $500,000 on January 1, 2010, what annual rate of interest isbeing earned on this fund?

Answer & Explanation Solved by verified expert
3.7 Ratings (301 Votes)
The answer is 1112 Calculations and explanations Here monthly payment 750 total duration 5 years12 60 months PV 250000 and FV 500000 The 1st contribution is made 1 month after January 1 2005 ie at end of the month Hence we can see that for January interest will be earned only on 250000 and the contribution of 750 will not earn any interest Closing amount at the end of January 2005 250000750interest on 250000 For February 2005 interest interest rateclosing balance on January 2005 We will continue this cycle till end of December 2009 Creating a table we get month rate 0927 and so annual rate 092712 1112 Date Beginning balance Contribution r monthly Interest amount Ending balance 01 January 2005    See Answer
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