Question

You bought an investment for $1000 and 5 years later sold that investment for $1700. Taking into account compounding, what was your average annual return during the investment? Round your answer to the nearest tenth of a percent and use decimals

Answer 1

Answer:

11.19%

Step-by-step explanation:

We will use compound interest formula :

$A=P(1+\frac{r}{n})^{n(t)}$

A = accumulated value = $1,700

P = principal amount   = $1,00

r  = rate of interest = ?

n  = number of compounding = 1

t   = time = 5 years

Now put the values into formula

$1700=1000(1+\frac{r}{1})^{1(5)}$

$1700=1000(1+r)^{5}$

$\frac{1700}{1000}=(1+r)^5$

1.7 = (1+r)⁵

$(1.7)^{\frac{1}{5}} =1+r$

$(1.7)^{0.2} =1+r$

1.1119 = 1 + r

r = 1.1119 - 1

r = 0.1119

R = 0.1119 × 100

  = 11.19%

Average annual return was 11.19%