+0  
 
0
51
2
avatar

An investment opportunity offers to pay out $102 two years for now. In order to receive this payout, you must invest $74 today. What annual rate of return is this investment offering? Put your answer in decimal form and round to four decimal places

Guest Feb 14, 2017

Best Answer 

 #1
avatar+10613 
+5

FV=PV(1+r x t  )    r = interest rate /year   t = number of years

102 = 74 (1+r x 2 )

1+ 2r = 102/(74 )

r =.1891892=18.9189%

ElectricPavlov  Feb 14, 2017
Sort: 

2+0 Answers

 #1
avatar+10613 
+5
Best Answer

FV=PV(1+r x t  )    r = interest rate /year   t = number of years

102 = 74 (1+r x 2 )

1+ 2r = 102/(74 )

r =.1891892=18.9189%

ElectricPavlov  Feb 14, 2017
 #2
avatar
+5

EP: What you have calculated is "simple" annual rate:

FV=PV[1 + R]^N

102 =74[1 + R]^2

R =17.40% =0.1740 - annual compound rate. Well, now they have both "simple" and "compound" rate!.

Guest Feb 14, 2017

13 Online Users

avatar
avatar
avatar
avatar
We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners.  See details