Solving for Rates What annual rate of return is earned on a $2,000 investment made in year 3 when it grows to $3,000 by the end of year 6?
A)6.99 percent
B)14.47 percent
C)24.00 percent
D)50.00 percent

Question

Quizplus · Accepted Answer

To solve for the annual rate of return, we need to use the formula for compound interest:

FV = PV * (1 + r)^n

where FV is the future value, PV is the present value, r is the interest rate, and n is the number of years.

We know that PV = $2,000, FV = $3,000, and n = 6 - 3 = 3. We can plug these values into the formula and solve for r:

$3,000 = $2,000 * (1 + r)^3
(1 + r)^3 = 1.5
1 + r = 1.15
r = 0.15 = 15%

Therefore, the annual rate of return is 15%, which is closest to choice B, 14.47%.

Solving for Rates What Annual Rate of Return Is Earned