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Can someone help me with this problem?
"at the end of each yr for the next 10 yrs you will receive $50. Initial investment is $320. what is the rate of return expected?"
I started by by looking at it this way
320 = 50 * (1-(1/(1+r)^10))/r
but impossible to solve...
p.s. i'm not allowed to use a financial calculator
do i just estimate it ..that will take forever and i'm not sure if there will be tables on the exam
Any suggestions?
Thanks.
I think you may be overanalysing the problem a bit.
If you get $50 for the next 10 years, then that's $500 overall, which makes $820 when added to your original investment.
This is an increase of 820/320 = 2.5625 times the original amount.
To get this over 10 years, the rate of return has to be n, where n^10 = 2.5625.
Therefore, n = [sub]10[/sub]√(2.5625) ≈1.099.
This means that the expected rate of return is 10% to the nearest %.
If you don't get your original investment back, then the method is the same, but you use $500 in the calculation instead of $820.
Why did the vector cross the road?
It wanted to be normal.
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