If you receive $10 000 back as principal and interest at the end of two years for an initial investment of $9127 at the start of the term,what is the yield on your investment?
A) 4.37% per annum
B) 4.78% per annum
C) 8.73% per annum
D) 9.57% per annum

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to solve this problem:

A = P(1+r)^n

Where:
A = final amount
P = initial investment
r = interest rate as a decimal
n = number of compounding periods

We know that A = $10,000, P = $9,127, and n = 2 years. We can solve for r:

$10,000 = $9,127(1+r)^2
(1+r)^2 = $10,000/$9,127
(1+r)^2 = 1.0957
1+r = √1.0957
1+r = 1.0478
r = 0.0478 or 4.78%

Therefore, the yield on the investment is 4.78% per annum, which corresponds to choice B.

If You Receive $10 000 Back as Principal and Interest