At what annual interest rate must 120,000 be invested so that it will grow to be 250,000 in 9 years?
The amount of 120,000 (PV) is invested now at the start of period 1, and needs to be compounded forward 9 years (n) to the value of 250,000 (FV).
This problem is solved using the lump sum discount rate formula as follows.
FV = 345,000 PV = 120,000 n = 9 i = (FV / PV)(1 / n) - 1 i = (250,000 / 120,000)(1 / 9) - 1 i = 8.50%
The amount of 120,000 invested today in an account earning 8.50% compound interest, will grow into an amount of 345,000 in 9 years time.
DR1 Discount Rate Examples
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