What annual rate of return is implied on a $5,000 loan taken next year when $7,700 must be repaid in year 8?
A) 6.36%
B) 7.12%
C) 8.54%
D) 11.62%

Question

Quizplus · Accepted Answer

The correct answer is A because the annual rate of return is 6.36%. This can be calculated using the formula: r = (FV/PV)^(1/n) - 1, where r is the annual rate of return, FV is the future value, PV is the present value, and n is the number of years. In this case, FV = $7,700, PV = $5,000, and n = 8. Plugging these values into the formula, we get: r = (7700/5000)^(1/8) - 1 = 0.0636, or 6.36%.

What Annual Rate of Return Is Implied on a $5,000