Question 1119181: To save for retirement, Karla Harby put $550 each month into an ordinary annuity for 20 years. Interest was compounded monthly. At the end of the
20 years, the annuity was worth $226,173. What annual interest rate did she receive?
**(Answer has to be in "%", and "2" decimal places).
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! you can use a financial calculator to solve this.
i used the TI-BA-II business analyst and got the following.
the calculator told me that the interest rate per month is equal to .417000132 percent.
multiply that by 12 to get an annual interest rate of 5.004001581 percent.
round that to 2 decimal places and you get an annual interest rate of 5.00 percent.
that's the same as 5.00%.
my inputs were:
present value = 0
future value = 226173
number of months = 20 * 12 = 240
payment per month = -550
payment is made at the end of each month.
my output was the interest rate per month shown above.
the calculators use the following convention.
if the money is coming in to you, it is shown as positive.
if the money is going out from you, it is shown as negative.
the future value of the annuity was money coming in to you, so it was entered as positive.
the monthly payment was money going out from you, so it was entered as negative.
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