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%