Question

You have an investment account that started with

​$1,000

10

years ago and which now has grown to

​$7,000.

a. What annual rate of return have you earned​ (you have made no additional contributions to the​ account)?

b. If the investment account earns

14%

per year from now​ on, what will the​ account's value be

10

years from​ now?

a. What annual rate of return have you earned​ (you have made no additional contributions to the​ account)?

Your annual rate of return is:

​(Round to two decimal​ places.)

Answer 1

a]	$1000 is the present value [PV} and $7000 is the
	future value [FV].
	Hence, 7000 = 1000*(1+r)^10
	where r = the annual rate of return.
	Solving for r:
	7000/1000 = (1+r)^10
	(7000/1000)^(1/10)-1 = r	21.48%
	r = 21.48%
	Answer: Rate of return = 21.48%.
b]	Here, the requirement is to find the FV of $1000
	after 10 years at an interest rate of 14%.
	FV = 1000*1.14^10 =	$     3,707.22
	Answer: Account's value, 10 years from now = $3,707.22