The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately ________.
A) 5%
B) 7%
C) 10%
D) 12%

Question

Quizplus · Accepted Answer

To find the rate of return earned on an investment, we need to use the present value of an annuity formula.

Present value of an annuity = (payment amount x (1 - (1 + r)^(-n))) / r

Where, 
payment amount = $10,489 
n = 6 years 
r = rate of return

Using a financial calculator or excel solver function, we can solve for the rate of return that equates the present value of the annuity payments with the initial investment of $50,000.

The answer is approximately 7%. Therefore, the best choice is B, 7%.

The Rate of Return Earned on an Investment of $50,000