How would I get this answer in Excel?

Question

Your parents are planning to retire in 18 years. They currently have $250,000, and they would
like to have $1,000,000 when they retire. What annual rate of interest would they have to earn
on their $250,000 in order to reach their goal, assuming they save no more money?

Answer 1

There is a compound interest math function YIELDMAT. Enter the numbers you know into cells and reference those cells in the formula.

Answer 2

=RATE(18,0,-250000,1000000)

The first part of the function asks for the number of periods, 18. The second part asks what the payment each period would be, which, according to your example, would be zero.

As a side note, it really makes a big difference in your results to add money on a consistent basis, both with the benefits of buying more shares at lower prices, as well as helping the growth accelerate quicker.

It asks for the present value, which in this case, is negative 250,000. It's negative because it represents an outflow (or investment) of cash, so you have that much less cash once you invest it.

The last field I used was the future value field- what value it has to be at the end of the year.

The final field is one that you can change your payments to happen at the beginning of each period, or the end. In this case, there are no payments and doesn't need a value.

The result of this equation is 8%. This rate is a realistic assumption of return.

Answer 3

well, they are needing to make a total of around 750,000 more, which would come out to around 42,000 a year.. so at 17% intrest they would make 42,500 a year off of their 250,000.... which in 18 years would total them 765,000 + their 250,000 would equal 1,015,000 so it would be a little less then 17 % but greater than 16.5%....

Answer 4

8.005975%

=250000*(1.008005975^18) is 1,000,000.19