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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

#1
+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:

#1
+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
#2
+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

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