Solving for Rates What annual rate of return is earned on a $4,000 investment made in year 2 when it grows to $8,000 by the end of year 8?
A)9.00 percent
B)12.00 percent
C)12.25 percent
D)50.00 percent

Question

Quizplus · Accepted Answer

To solve for the annual rate of return, we need to use the compound interest formula: FV = PV(1 + r)^n, where FV is the future value, PV is the present value, r is the annual interest rate, and n is the number of years.

Plugging in the given values, we get:
$8,000 = $4,000(1 + r)^6
2 = (1 + r)^6
Taking the sixth root of both sides, we get:
1.12246 = 1 + r
r = 1.12246 - 1
r = 0.12246 or 12.25%

Therefore, the answer is choice C.

Solving for Rates What Annual Rate of Return Is Earned