An engineer invests $5800 at the end of each year for a 35-year career. If the engineer wants $1,000,000 in savings at retirement, what interest rate must be the investment return?
15.8% per annum.
working as follows
5800 x (1.a)^35 =10^6 ,solve for a where a is your annual interest rate.
His investment return will be about 8.00252797496% compounded annually. The formula you use to calculate this is: FV=P{[1 + R]^N - 1/ R}=FV OF $1 PER PERIOD.
Where R=Interest rate per period, N=number of periods, PMT=periodic payment, FV=Future value.
P.S. There is NO DIRECT solution for the interest rate for a problem of this type. The interest rate is found through iteration and interpolation.
Sorry,guest 2,but your answer of 8% is wrong.So is your statement that these problems do not have a direct solution. My solution of 15.8% is a slightly low approx as I was rounding off during the calculation,but gives an answer of just under one million.
ie 5800 x (1.158^35). This is a straightforward and standard type of compound interest problem.
