Jon is planning to buy a house in 20 years. He wants to invest 870 USD now and hopes to have 9870 USD to spend on the house when he buys it. What kind of interest rate would he need if his investment is compounded monthly?

Jon is planning to buy a house in 20 years. He wants to invest 870 USD now and hopes to have 9870 USD to spend on the house when he buys it. What kind of interest rate would he need if his investment is compounded monthly?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 11E

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Question

Expert Solution

Step 1

Future Value = Present Value * (1+r)^n

Where,

r = rate of interest per period

n = no. of compounding year per period i.e. 20 *12 = 240

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