A person invests $2000 annually in an IRA. At the end of 6 years, the amount in the fund is $14000. What annual nominal compounding rate has this fund earned?

Answer 1

amount of sinking fund:

S = N [(1+r)^n -1 ]/r
7 = [(1+r)^6 -1 ]/r
7 r = (1+r)^6 -1

(1+r)^6 = 7 r + 1
I do not see a closed form solution off hand.
make a table
r left right
.04 1.26 1.28
.05 1.34 1.35
.06 1.42 1.42 looks like 6%

Answer 2

2000(1+i)^6 = 14000
(1+i)^6 = 7
take 6th root
1+i = 1.38308
i = .3808
or
38.08%

Quickly, tell me where I can earn 38% interest.

Answer 3

forget my answer, go with Damon

I read it as a single deposit.

Answer 4

Thank you both. I tried this using the "72 rule" and was discouraged by my answer due to the book answer of 9.64% and I am not sure how that answer is founded.