Question

Mr. ABC deposited P500,000 on February 8, 2012. If his investment amounted to P550,000 on August 29, 2016 with no deposit made to the account over the period, what is the annual rate of return (in %, roundoff to 2 decimal places)?

Answer 1

Given,

Initial investment = P500,000

Investment date = 08.02.2012

Maturity amount ( amount on 29.08.2016) = P550,000

Maturity date = 29.08.2016

No.of days = 1664 days

Calculation of annual rate of return from the investment

Maturity amount = Investment (1 + r)⁵⁵

550,000 = 500,000 (1 + r)^4.5

(1 + r)^4.5 = 1.1

r = 2.2% using dirty power formula

(1.022)^4.5 = 1.1

Therefore annual rate of return is 2.2%

Hint:

Using simple interest method

550,000 = (500,000 I 4.5y) + 500,000

50,000 = (500,000 I 4.5y)

I = 50,000 / (500,000 4.5y)

I = 2.2%