Question

**Solving for Rates** What annual rate of return is
earned on a $5,200 investment made in year 2 when it grows to
$11,600 by the end of year 11?

49.36%

7.57%

9.32%

44.83%

Answer #1

Assuming the investment is made in year 1 , then it will grow to 11,600 in year 10. Thus we can use compound interest formula where,

**A = P (1 + r/n) ^{(nt)}**

**Where:**

**A** = the future value of the investment/loan,
including interest

**P** = the principal investment amount (the initial
deposit or loan amount)

**r** = the annual interest rate (decimal)

**n** = the number of times that interest is
compounded per year

**t** = the number of years the money is invested or
borrowed for

11,600 = 5200*(1+r)^10

thus r =8.354%

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