SOLUTION: Akhil wants to invest Rs 2,500 every year for a period of 6 years so that he can receive Rs.18,000 at the end of tenure.What is the interest rate at which he should invest?

Question 247104: Akhil wants to invest Rs 2,500 every year for a period of 6 years so that he can receive Rs.18,000 at the end of tenure.What is the interest rate at which he should invest?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
payment amount is equal to 2500 at the beginning of each year.
future value of all the payments is equal to 18000.
compounding is annual (once a year).

answer is interest rate = 5.233196982 percent per year.

progression each year is as follows.

displays have truncated but the actual calculations are being done by the full numbers stored in calculator memory.

end of year 1 you have 2500 * 1.052 = 2630
end of year 2 you have (2630 + 2500) * 1.052 = 5399
end of year 3 you have (5399 + 2500) * 1.052 = 8312
end of year 4 you have (8312 + 2500) * 1.052 = 11378
end of year 5 you have (11378 + 2500) * 1.052 = 14605
end of year 6 you have (14605 + 2500) * 1.052 = 18000

I used a financial calculator to get the result since I was unable to find a formula that would solve for the interest rate.

I believe the calculator solves by doing iterations until it narrows down to a solution. You can also do this manually but it takes much much longer.

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