Calculate the value of an investment at the end of its fourth year if the initial investment is $10 000 and it produces the following annual rates of return: Year 1,gain 15%;Year 2,gain 17%;Year 3,loss 5%;Year 4,gain 4%.
A)$14 295
B)$13 100
C)$13 293
D)$11 957

Question

Quizplus · Accepted Answer

To calculate the final value of the investment at the end of the fourth year, we need to calculate the return for each year using the following formula:

Return = (Ending Value - Beginning Value) / Beginning Value

Year 1:
Return = (10,000 x 15%) = 1,500
Ending Value = Beginning Value + Return = 10,000 + 1,500 = 11,500

Year 2:
Return = (11,500 x 17%) = 1,955
Ending Value = Beginning Value + Return = 11,500 + 1,955 = 13,455

Year 3:
Return = (13,455 x (-5%)) = -673
Ending Value = Beginning Value + Return = 13,455 - 673 = 12,782

Year 4:
Return = (12,782 x 4%) = 511
Ending Value = Beginning Value + Return = 12,782 + 511 = 13,293

Therefore, the investment is worth $13,293 at the end of the fourth year. The answer is C.

Calculate the Value of an Investment at the End of Its