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 eight?
A) 9.00%
B) 12.00%
C) 12.25%
D) 50.00%

Question

Quizplus · Accepted Answer

The correct answer is C.The annual rate of return can be calculated using the formula:r = (FV/PV)^(1/n) - 1where:r = annual rate of returnFV = future valuePV = present valuen = number of yearsIn this case, the present value is $4,000, the future value is $8,000, and the number of years is 8. Plugging these values into the formula, we get:r = (8,000/4,000)^(1/8) - 1r = 1.1225 - 1r = 0.1225Therefore, the annual rate of return is 12.25%.

Solving for Rates What Annual Rate of Return Is Earned