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> F=A*((1+r)^n-1)/r
>
> r = interest rate
> n = number of installment for a fixed investment plan
> A = fixed amount for each installment
> F = Final capital value
>
> For example, an insurance saving plan offers $20,000 return in the
> next
> 20 years by paying $600 every year. How to determine the interest
> rate?
> ((1+r)^n-1)/r = $20,000 / $600 = 33.333, when n is 20, then r will
> equal to approximate 5%.
Eric,
I assume you have access to Microsoft Excel? Have a look at the RATE
function.
RATE
See Also
Returns the interest rate per period of an annuity. RATE is calculated
by iteration and can have zero or more solutions. If the successive
results of RATE do not converge to within 0.0000001 after 20
iterations, RATE returns the #NUM! error value.
Syntax
RATE(nper,pmt,pv,fv,type,guess)
etc etc
Failing that, just enter the formula in an Excel cell with the
approriate values for F and A and then do a goal seek for the value of r.
If you really want the value of r it can be found,
r(r+1)¹⁻ⁿ= A/F F≠0,r>0
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