Nick invests $50 000 today and the fund guarantees an annuity of $12 345 for six years. What is the approximate rate of return?
A)13.5 percent
B)11.6 percent
C)12.5 percent
D)Insufficient information to calculate

Question

Quizplus · Accepted Answer

The rate of return can be calculated using the present value of annuity formula. Solving for the interest rate that equates the present value of the annuity payments ($12,345 for 6 years) to the initial investment ($50,000) gives approximately 12.5 percent.

Nick Invests $50 000 Today and the Fund Guarantees an Annuity