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Five years ago, Brian had invested $14,850 in a growth fund. The investment is worth $22,000 today. If the interest was compounded annually, what is the annual rate of return earned on the investment?

Respuesta :

Abotaiwo

Answer:

Approximately 8.12%

Explanation:

The annual rate of return is computed using the compounding formula below:

            FV                 = P(1 + r)^n

Where FV                 = future value of investment

              P                 = Principal

              r                  = rate of interest per period

              n                 = number of period

            FV                 = $22,000

              P                 = $14,850

               r                 = Unknown

               n                = 5

        22,000             = 14,850(1 + r)^5

22,000/ 14,850         = {14,850(1 + r)^5}/14,850

1.481481481               =  (1 + r)^5

[tex]\sqrt[5]{1.481481481 }[/tex]            =  (1 + r)

1.081780741              = 1+r

1.081780741 -1           = r

0.081780741              = r

Approximate 0.081780741 and convert to percentage

0.081780741              = 0.0812 *100% = 8.12%

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