Bill deposits $100 at the end of each year for thirteen years into fund A. Seth deposits $100 at the end of each year for thirteen years into fund B. Fund A earns an annual effective rate of 15% for the first five years and an annual effective rate of 6% thereafter. Fund B earns an annual effective rate of i throughout the thirteen years. The two funds have equal accumulated values at the end of the thirteen years. Find i.

The value of interest is 7,387%

Explanation:

We will first deal with fund A. First we will deal with the first 5 years earning interest at 15%.

Using a financial calculator we enter the following keystrokes

n = number of years i = interest pmt = annual payments FV = future value

n = 5 i = 15% pmt = 100 COMP FV

FV = 674,23

Now we wil use 674,23 as our Present Value (PV).

n = 8 PV = 674,23 i = 6% pmt = 100 comp FV

FV = 2064,36

Now we use this figure as the FV in Fund B to determine the interest rate.

n = 13 FV = 2065,36 pmt = 100 comp I *Note that either payments or FV needs to be entered as a negative otherwise the calculator will give you an error.

Interest = 7,387%

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