12. A mutual fund has been advertising that, had you deposited $250 per month in the fund for the last 10 years, you would now have accumulated $85,000. Assuming that these deposits were made at the beginning of each month for a period of 120 months, calculate the effective annual return fund investors got. Hint: Set up the following spreadsheet and then use Goal Seek. 1 Monthly payment 2 Number of months A B 250 120
12. A mutual fund has been advertising that, had you deposited $250 per month in the fund for the last 10 years, you would now have accumulated $85,000. Assuming that these deposits were made at the beginning of each month for a period of 120 months, calculate the effective annual return fund investors got. Hint: Set up the following spreadsheet and then use Goal Seek. 1 Monthly payment 2 Number of months A B 250 120
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please use excel, need help with functions and setting up cash flows in Excel. May you
please explain where/how you are getting the numbers through providing explanation and show the formulas. Thank you!
Transcribed Image Text:12.
A mutual fund has been advertising that, had you deposited $250 per month in the fund
for the last 10 years, you would now have accumulated $85,000. Assuming that these
deposits were made at the beginning of each month for a period of 120 months, calculate
the effective annual return fund investors got.
Hint: Set up the following spreadsheet and then use Goal Seek.
A
1 Monthly payment
2
Number of months
3
4 Effective monthly return?
5 Accumulation
B
250
120
<-- =FV (B4,B2,-B1,,1)
The effective annual return can then be calculated in one of two ways:
• (1 + monthly return)¹2 1: This is the compound annual return, which is preferable,
since it makes allowance for the reinvestment of each month's earnings.
• 12* monthly return: This method is often used by banks.
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