Compute the interest rate at which $500 per month payments should grow to accumulate savings of $100,000 in 7 years. payments are made at the end of each month. (note: round your answer to two decimal places.) rate disc nominal effect a b 1 data description 2 nper 7 x 12 = 84 3 pmt 500 4 pv 0 5 fv 100,000 6 [type] 0 7 interest rate =effect(1.87%, b5) 8 = %

The interest rate=13.19%

Explanation:

Step 1: Calculate the present value of the investment

Present value=monthly payments×number of months in a year×number of years

where;

monthly payments=$500

number of months in a year=12

number of years=7

replacing;

Present value=(500×12×7)=42,000

Present value=$42,000

Step 2: Get interest rate

Using the formula below;

FV=PV(1+r)^n

where;

FV=future value of the investment=$100,000

PV=present value=$42,000

r=unknown

n=7

replacing;

100,000=42,000{(1+r)^7}

(100,000/42,000)=(1+r)^7

(100/42)^(1/7)=1+r

1.1319=1+r

r=1.1319-1

r=0.1319

The interest rate=0.1319×100=13.19%

The interest rate=13.19%

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