Formula to Solve for Interest (i)

•The formula to find the interest rate per compounding period is:



Example: Finding the Rate

Matthew purchased $1,000 worth of Megastore shares 10 years ago. He just sold them for $3,248. What monthly compounded rate of return did he realize on his investment?



Solving for Number of Time Periods

Example

•Suppose you want to buy a new house. You currently have $15,000, and you figure you need to have a 10% down payment plus an additional 5% of the loan amount for closing costs. Assume the type of house you want will cost $150,000 and you can earn 7.5% per year on an investment. How long will it take you to have enough money for the down payment, and the closing costs?

Number of Time Periods – Example cont.

•How much do you need to have in the future?
- Down payment = .1($150,000) = $15,000
- Closing costs = .05($150,000 – $15,000) = $6,750
- Total needed = $15,000 + $6,750 = $21,750

•Compute the number of periods
- PV = -15,000; FV = 21,750; I/Y = 7.5
- NPER(RATE,PMT,-PV,FV)
- NPER(.075,0,-15000,21750)
- NPER = 5.14 years





Last modified: Tuesday, August 14, 2018, 8:41 AM