What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?
A) 7 percent
B) 0 percent
C) 4 percent
D) 1 percent

Question

Quizplus · Accepted Answer

The rate of return can be calculated using the present value formula:

PV = Annual payment / (1 + r)^n

where PV is the present value of the investment, r is the rate of return, n is the number of years, and Annual payment is the expected payment each year.

Plugging in the given values, we get:

$124,090 = $10,000 / (1 + r)^1  + $10,000 / (1 + r)^2 + ... + $10,000 / (1 + r)^30

Using a financial calculator or spreadsheet, we can solve for r, which turns out to be approximately 7%. Therefore, the rate of return on the investment is 7%.

What Is the Rate of Return on an Investment of $124,090