An individual makes payments of $1000 annually to an IRA. After 10 years the account has grown to $15,486.56. Approximate the annual interest rate used on the IRA.
If the payments of $1,000 are made at the of end the year, then the interest rate on this investment
=9.40% compounded annually.
Here is the formula used to calculate this, if you wish to verify the answer:
PMT=FV{[[1 + R]^N - 1]^-1. R}=PMT NEEDED TO SAVE $1 IN THE FUTURE,
Where, R=Interest rate per period, N=number of periods, P=periodic payment. FV=Future value.
