"If I invest ₹2,41,000 annually for 12 consecutive years and then allow the invested
amount to grow without any additional contributions for the next 18 years, and the final
amount at the end of 30 years is ₹79,00,000, what is the annual rate of return
(compounded annually) on my investment?"
To find the rate of interest earned, we can break the investment into two phases:
Phase 1: Investment Phase (12 years)
You invest ₹241,000 annually for 12 years.
Let's assume the interest rate is r% per annum, compounded annually.
At the end of 12 years, your total investment will grow for 18 more years without
additional contributions.
Phase 2: Growth Phase (18 years)
The accumulated amount from the first 12 years continues to grow at the same interest
rate for 18 more years.
Final maturity value after 30 years = ₹7,900,000
Step-by-step approach:
We use the Future Value of an Ordinary Annuity formula for the first 12 years:
FV12=P×(1+r)12−1rFV_{12} = P \times \frac{(1 + r)^{12} - 1}{r}
This amount then grows for 18 years:
FV30=FV12×(1+r)18FV_{30} = FV_{12} \times (1 + r)^{18}
Substituting and combining:
7,900,000=241,000×(1+r)12−1r×(1+r)187,900,000 = 241,000 \times \frac{(1 + r)^{12} - 1}
{r} \times (1 + r)^{18}
This equation is complex to solve algebraically for r, so we will solve it numerically.
Let’s calculate it numerically (approximate):
Using a financial calculator or iterative method:
Trying r = 8% (0.08):
FV_12 = 241000 × [(1.08)^12 – 1] / 0.08 ≈ 241000 × 21.589 ≈ 5,200,049
FV_30 = 5,200,049 × (1.08)^18 ≈ 5,200,049 × 3.996 ≈ 20,780,000 → too high
Trying r = 4% (0.04):
FV_12 = 241000 × [(1.04)^12 – 1] / 0.04 ≈ 241000 × 15.054 ≈ 3,626,014
FV_30 = 3,626,014 × (1.04)^18 ≈ 3,626,014 × 2.026 ≈ 7,345,000 → close
Trying r = 4.3%:
FV_12 = 241000 × [(1.043)^12 – 1] / 0.043 ≈ 241000 × 15.79 ≈ 3,802,390
FV_30 = 3,802,390 × (1.043)^18 ≈ 3,802,390 × 2.077 ≈ 7,900,000 → match!
✅ Final Answer:
The annual rate of interest earned is approximately 4.3% compounded annually.
If I invest ₹2,41,000 annually for 12 consecutive years and then allow the invested amount to
grow without any additional contributions for the next 18 years, and the final amount at the
end of 30 years is ₹20000000, what is the annual rate of return (compounded annually) on
my investment?"
Thanks for the update. Let's solve this revised version:
Given:
Annual investment = ₹2,41,000
Investment duration = 12 years (annual payments at end of each year)
Growth period (no investment) = 18 years
Final amount after 30 years = ₹20,000,000
Compounded annually
Need to find: annual rate of return (r%)
Step-by-step solution:
1. Future Value of Annuity over first 12 years:
FV12=P×(1+r)12−1rFV_{12} = P \times \frac{(1 + r)^{12} - 1}{r}FV12=P×r(1+r)12−1
2. Growth of FV_12 for 18 years:
FV30=FV12×(1+r)18FV_{30} = FV_{12} \times (1 + r)^{18}FV30=FV12×(1+r)18
Combining:
20,000,000=241,000×(1+r)12−1r×(1+r)1820,000,000 = 241,000 \times \frac{(1 + r)^{12} -
1}{r} \times (1 + r)^{18}20,000,000=241,000×r(1+r)12−1×(1+r)18
We solve this numerically.
Trial-and-error or using a calculator:
Try r = 6.5% (0.065):
FV_12 = 241000 × [(1.065)^12 – 1] / 0.065 ≈ 241000 × 18.48 ≈ 4,453,680
FV_30 = 4,453,680 × (1.065)^18 ≈ 4,453,680 × 3.017 ≈ ₹13,430,000 → too low
Try r = 8.5%:
FV_12 = 241000 × [(1.085)^12 – 1] / 0.085 ≈ 241000 × 22.05 ≈ 5,321,886
FV_30 = 5,321,886 × (1.085)^18 ≈ 5,321,886 × 4.246 ≈ ₹22,622,000 → too high
Try r = 8%:
FV_12 ≈ 241000 × 21.589 ≈ 5,200,049
FV_30 = 5,200,049 × (1.08)^18 ≈ 5,200,049 × 3.996 ≈ ₹20,782,000 → very close
Try r = 7.9%:
FV_12 ≈ 241000 × 21.333 ≈ 5,140,253
FV_30 = 5,140,253 × (1.079)^18 ≈ 5,140,253 × 3.898 ≈ ₹20,035,000 → very close
✅ Answer:
The annual rate of return is approximately 7.9% compounded annually.
