Solving for Rates What annual rate of return is earned on a $900 investment when it grows to $2,500 in fifteen years?
A) 1.78%
B) 2.78%
C) 6.58%
D) 7.05%

Question

Quizplus · Accepted Answer

To solve for the annual rate of return, we can use the formula: 
Final value = initial value x (1 + r)^n 
where r is the annual rate of return, n is the number of years, and we are given the final value ($2,500) and initial value ($900).

Therefore, we can plug in the values: 
$2,500 = $900 x (1 + r)^15

Dividing both sides by $900: 
2.7777778 = (1 + r)^15

Taking the 15th root: 
1.0705321 = 1 + r

Subtracting 1 from both sides: 
r = 0.0705321 = 7.05321%

Rounding to two decimal places, the answer is 7.05%. Therefore, the best choice is D.

Solving for Rates What Annual Rate of Return Is Earned