The Monumental Returns Investment Company is offering you an investment that promises you $1,000 at the end of ten years if you invest $500 today. What average annual rate of return
Does this investment promise? Round your answer to the nearest tenth of a percent.
A)100.0%
B)10.3%
C)20.0%
D)7.2%

Question

Quizplus · Accepted Answer

We can use the formula for compound interest:

A = P(1+r)^n

Where A is the future value, P is the present value, r is the annual interest rate as a decimal, and n is the number of years.

Plugging in the values given, we have:

1000 = 500(1+r)^10

Dividing both sides by 500:

2 = (1+r)^10

Taking the tenth root of both sides:

1.072 = 1+r

Subtracting 1 from both sides:

r = 0.072 or 7.2%

Therefore, the investment promises an average annual rate of return of 7.2%. The best choice is D.

The Monumental Returns Investment Company Is Offering You an Investment