Question

If my investor wants 10% interest on an annualized basis on his 18 month $600,000 investment. How am I to calculate this?

Answer 1

An annualized return measures the investment's performance on a yearly basis

the formula of annualized return = ((ending value of investment/beginning value of the investment)^1/no. of years)-1

solution

let the ending value of investment is X

beginning value = 600000

no of years = 1.5 years

annualized return =10% or 0.1

the formula we get is, 0.1 =(( X / 600000)^1/1.5) -1

simlifying, 0.1 = 0.1 =(( X / 600000)^2/3) -1

by adjusting formula we get, X =( (1.1)^3/2)*600000

X =( (1.1)^1.5)*600000

X = $692213.8

ending value of investment = $692213.8

interest received = $92213.8