Problema Solution
In 22 years, you would like to have 240000 to buy a vacation home. If you have only $70000, at what rate must it be compounded annually for it to grow to $240000 in 22 years?
Answer provided by our tutors
P = $70,000 the principal (the investment)
t = 22 years
A = $240,000 the future value
r = the rate as a decimal
A = P(1 + r)^t
240000 = 70000(1 + r)^22
70000(1 + r)^22 = 240000 divide both sides by 70000
(1 + r)^22 = 240000/70000
(1 + r)^22 = 24/7
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click here to see the equation solved for r
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r = 0.3093 or 30.93%
The compounding rate should be 30.93%.