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During its first year, an investment grew at a rate equal to 7.5%. Then, in the second year, it lost part of its value at a rate equal to 9.25%. Finally, in the third year, it gains part of its value at a rate equal to 10.5%. What is the average rate of return?

Respuesta :

TomShelby

Answer:

The effective rate per year will be of 2.535%

Explanation:

we multiply the subsequent rates to obtain the total rate for the three years and then, we solve for the equivalent annual rate:

[tex](1+r_1)(1+r_2)(1+r_3) = (1+r_e)^3[/tex]

(1 + 0.075)(1-0.0925)(1 + 0.105) = 1.077996563

Now that we got the left side of the equation sovle, we clear rate (r) and solve for it.

[tex]r_e = \sqrt[3]{1.077996563} -1[/tex]

0.025350762

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